ATF Publishes Regulations Requiring Background Checks for “Responsible Persons” of Trusts and Corporations
By Teresa G. Ficaretta, Esq. and Johanna Reeves, Esq.
This article appeared in Small Arms Review in May 2016. Legally Armed: V20N4
On January 4, 2016, the Attorney General signed a final rule amending Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) regulations in Title 27 of the Code of Federal Regulations, Part 479, relating to making and transfer applications for firearms regulated under the National Firearms Act (“NFA”). The regulations will require “responsible persons” of trusts and legal entities such as partnerships and corporations to submit photographs and fingerprints when the entity submits an application to make or transfer a firearm subject to the NFA. The regulations will also eliminate the law enforcement certification currently required for individuals submitting making and transfer applications.
ATF posted the final rule to its website on January 5, 2016, and it was published in the Federal Register on January 15, 2016. The effective date is July 13, 2016.
I. Historical Background
The NFA, Title 26 of the U.S. Code, Chapter 53, regulates machineguns, short barrel rifles, short barrel shotguns, silencers, destructive devices, and certain other concealable firearms known as “any other weapon.” The NFA requires such firearms to be registered by their respective manufacturer, maker, or importer, and transfers must be approved in advance by ATF.
For many years, ATF regulations implementing the NFA have required applications to make firearms (filed on ATF Form 1) and applications to transfer firearms to unlicensed individuals (filed on ATF Form 4) include photographs and fingerprints of the maker or transferee, respectively. The photographs and fingerprints enable a background check of the prospective possessor to ensure he or she is not prohibited from receiving or possessing firearms under federal or state law. In the case of individual applicants, the Form 1 or Form 4 application also had to include a certification from the local chief of police, sheriff of the county, or other chief law enforcement officer (commonly referred to as the “CLEO certification”). The certification included a statement that the official has no information indicating receipt or possession of the firearm would place the applicant in violation of state or local law, or that the applicant will use the firearm for other than lawful purposes.
In many jurisdictions law enforcement officers have expressed reluctance to execute the CLEO certification. Officials have stated their concern with the language of the certification, which requires them to certify they have no information the applicant will use the firearm for other than lawful purposes. Some officials have also refused to sign the certification because they do not wish to facilitate the acquisition of NFA firearms by their constituents and/or because they are concerned about personal liability if the firearm is misused. In a number of jurisdictions it is virtually impossible to find an official willing to sign the CLEO certification. This has resulted in a number of civil cases against ATF challenging the agency’s authority to require the CLEO certification. Federal courts, however, have consistently upheld the CLEO certification requirement, leading firearms enthusiasts to continue their search for alternatives.
Significantly, NFA regulations have not required applicants who are trusts or legal entities such as partnerships and corporations to provide photographs or fingerprints, as these requirements only applied to applicants who are individuals. This difference in the regulations has led to individuals forming trusts and other legal entities so as not to be subject to the photograph, fingerprint, and CLEO certification requirements. It is important to point out, however, that trusts are an important legal tool that can enable owners of registered firearms to pass their collections to beneficiaries outside of probate.
II. NFATCA Petition for Rulemaking
The difficulty in obtaining CLEO certifications was one reason the National Firearms Act Trade and Collectors Association (“NFATCA”) submitted to ATF a petition for rulemaking on December 3, 2009. The petition requested ATF eliminate the CLEO certification and pointed out that the refusal of some CLEOs to execute the certification had forced growing numbers of individuals to acquire registered NFA firearms through a trust or legal entity such as a partnership or corporation. The NFATCA also argued the CLEO certification does not alleviate ATF’s responsibility to ensure the applicant’s receipt or possession of the NFA firearms would not place the applicant in violation of law.
In its petition, the NFATCA expressed concern that persons prohibited by law from possessing firearms may be able to acquire NFA firearms through the establishment of a trust or legal entity and alleged that applications to acquire NFA firearms through such entities had increased significantly. Consequently, the NFATCA requested ATF to amend the regulations to require background checks on persons responsible for directing the management and policies of trusts and legal entities such as partnerships and corporations submitting Form 1 and Form 4 applications.
III. Notice of Proposed Rulemaking
On September 9, 2013, ATF published a notice of proposed rulemaking seeking public comment on proposed amendments to NFA regulations relating to responsible persons (“RPs”) of trusts, partnerships, corporations, and other legal entities. In the notice, ATF referenced the NFATCA petition as contributing to the agency’s decision to publish the proposals. ATF also noted that research indicated the number of Forms 1, 4, and 5 involving legal entities that are not federal firearms licensees (“FFLs”) increased from approximately 840 in 2000 to 12,600 in 2009 and then to 40,700 in 2012. ATF noted this increased the number of individuals having access to NFA firearms without a background check. Consequently, ATF proposed a number of amendments to the regulations, including a requirement that RPs for partnerships, corporations, and trusts submit photographs and fingerprints with Form 1 and Form
ATF received over 9,500 comments on the notice of proposed rulemaking, most of them opposed to the regulation changes outlined therein.
IV. Final Rule
The final rule adopts the proposal that all RPs of trusts and legal entities such as partnerships and corporations submit photographs, fingerprints, and identifying information so a background check can be conducted. Specifically, the rule makes the following changes to the regulations in 27 C.F.R. Part 479:
1. No CLEO Certification. The final rule eliminates the CLEO certification requirement for Form 1 and Form 4 applicants. The rule substitutes a CLEO notification requirement for such applicants that does not require a CLEO signature. Instead, applicants need only certify they have provided notification to their respective CLEO.
2. Definition of “CLEO”. CLEO is defined in the regulation as the local chief of police, county sheriff, head of the State police, or State or local district attorney or prosecutor. Corporate, partnership, and association applicants (other than FFLs) are considered to be located at its principal office or principal place of business. Trust applicants are considered to be located at the primary location at which the firearm(s) will be maintained.
3. CLEO Certification of Identity. Because ATF eliminated the requirement for CLEO certification, there is also no requirement for CLEOs to attest to the authenticity of the applicant’s photographs and fingerprints. However, ATF points out in the final rule that the existing FBI fingerprint cards (FD-258) require the official taking the applicant/transferee’s fingerprints to sign the fingerprint card to certify the official has verified the identity of the individual.
4. New ATF Form 5320.23, National Firearms Act (NFA) Responsible Persons Questionnaire. The new questionnaire will be required from each RP as part of the Form 1, 4, or 5 submission package. Similar to individual applicants, RPs must provide on the form confirmation they have notified the CLEO in their jurisdiction. The RPs also must attach photographs and fingerprint cards to enable a background check. As of the date of this article, the new proposed Form 5320.23 has not been published, as it is going through the review process at the Office of Management and Budget.
5. Documentation Establishing Existence and Validity of Entity. Trusts and legal entities such as partnerships and corporations must submit documents evidencing the existence and validity of the entity, such as copies of declarations of trust, partnership agreements, articles of incorporation, corporate registration, and trust attachments and schedules. ATF clarified that if the trust or other entity had a Form 1 or Form 4 application approved within the previous 24 months and there has been no change to previous documents, the entity may provide a certification that the information has not changed since the previous approval.
6. Definition of RP. The term “responsible person” applies only to unlicensed entities. This is an important change from the proposed rule because it does not affect FFLs who submit Forms 1, 4 and 5 to ATF. The definition of RP in the final rule includes only persons who possess the power or authority to direct the management and policies of an entity to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for or on behalf of the entity. In the case of a trust, responsible persons include any person who has the capability to exercise such power and possesses the power under state law to receive, possess, ship, transport, deliver, transfer, or otherwise dispose of a firearm for or on behalf of the trust. The definition provides examples of RPs to include settlors/grantors, trustees, partners, members, officers, directors, board members, and owners. ATF removed beneficiaries from this “non-exclusive” list of examples of RPs. However, a beneficiary who otherwise meets the definition (e.g., a beneficiary who is entitled to possess firearms under the terms of the trust and/or state law) fits within the definition.
7. New RPs Not Reported to ATF. Changes in the RPs of trusts and legal entities such as partnerships and corporations are not required to be reported to ATF.
8. Transfers of Firearms After Initial Transfer or Making Approved. The final rule did not change requirements for trusts and legal entities to submit new applications to make or transfer firearms if the entity wishes to acquire additional items after ATF approves the initial transfer. Any subsequent Form 1 or Form 4 applications must identify current RPs and include photos, fingerprints, and comply with the CLEO notification requirement.
9. Rules for Executors Transferring Registered Firearms. A new section of the regulations outlines the procedure for executors, administrators, and personal representatives to dispose of registered NFA firearms in estates. The executor is required, no later than the close of probate, to submit an application to transfer NFA firearms to the beneficiary on ATF Form 5. The Form 5 must be accompanied by ATF Form 5320.23 and a CLEO notification must be provided, unless the beneficiary is an individual, in which case the Form 5320.23 is not required.
The final rule makes significant changes in the information required in certain Form 1, Form 4, and Form 5 applications. Elimination of the CLEO certification will streamline the application process and make it easier for individuals to obtain registered NFA firearms. However, trusts and legal entities such as partnerships and corporations who wish to acquire NFA firearms will be required to submit significant personal information relating to RPs to enable the government to conduct thorough background checks. This requirement increases the paperwork burden and cost for such entities and may remove one of the incentives for their creation. Codification of the procedures for executors to follow in disposing of registered NFA firearms in estates is a positive development. For many years the only written direction concerning NFA firearms in estates has been the NFA Handbook and questions and answers on the ATF website. Including these requirements in the regulations makes them easy to find and gives them the force and effect of law.