ATF Publishes Rulings on Electronic Records And Consolidation of Records
By Teresa G. Ficaretta, Esq. and Johanna Reeves, Esq.
This article appeared in Small Arms Review in November 2016. Legally Armed: V20N9
On May 3, 2016, the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) published on its website three ATF rulings addressing requirements for maintaining electronic records and consolidating manufacturer records with disposition records. ATF Rul. 2016-1, 2016-2, and 2016-3 are available on ATF’s website, www.atf.gov.
The three rulings authorize federal firearms licensees to use more modern methods of creating and retaining records required by the Gun Control Act of 1968. The practices authorized include cloud storage for acquisition and disposition records and electronic signatures on e-Form 4473. An overview of each ruling is provided in this article.
ATF Rul. 2016-1
This ruling addresses the requirements for federal firearms licensees (“FFLS”) to maintain their acquisition and disposition records electronically rather than on paper. The ruling supersedes ATF Rul. 2013-5, which also addressed electronic acquisition and disposition records. The ruling allows FFLs to use software to create and maintain their acquisition and disposition records without applying for and receiving an approved variance, as long as all the requirements specified in the ruling are met. We have underlined the requirements of ATF Rul. 2016-1 that differ from those in ATF Rul. 2013-5 below:
1. The software must record all acquisition and disposition information required under the regulations in 27 C.F.R. Part 478, Subpart H. The software may record information beyond that required in the regulations in additional columns as long as the information is separate from the regulatory information and required information is “readily apparent.”
2. The software must track corrections and changes utilizing one of the following methods:
a. By retaining corrections as an entirely new entry without deleting or modifying the original entry. The software must be able to quickly and easily change views of the bound book to show only original entries, only corrected entries, and both original and corrected entries in the same bound book;
b. By printing corrections as a separate report containing the same information as a paper bound book. The correction report should follow the bound book format specified in the regulations or another column format as long as the necessary information is included in the report (may be in a notes column); or
c. If a spreadsheet program, such as Excel, is used, the system must track edits and corrections in a notes column. The corrections may overwrite the original entry as long as the notes column explains what was changed, who made the change, and why the change was needed.
3. The software cannot rely on invoices or other paper records to provide required record information. If an FFL chooses to use an electronic record keeping system for any of its acquisition and disposition records, then all such records must also be electronic records that comply with the requirements of ATF Rul. 2016-1.
4. The software must allow queries by firearm serial number, acquisition date, name of manufacturer, name of importer, name of purchaser, address of purchaser/transferee, and Form 4473 transaction serial number, if any.
5. FFLs who utilize electronic record keeping systems must download all records to a physical storage device (hard drive, CD, DVD, flash drive) at the FFL’s premises or print and maintain the records at the licensed premises. The downloads/printing
must take place:
a. At least semiannually, but if the records are downloaded from a remote storage
location (discussed in Item 9), they must be downloaded daily. The records must be downloaded in unencrypted form with required information “readily apparent;”
b. Prior to discontinuance or change of software, database system, or host facility; and
c. Prior to discontinuance of the FFL’s firearms business.
Downloads or printouts must include all firearms in inventory, firearms transferred during the period covered (sequentially by date of acquisition), and be limited to display only information required by the regulations. Additional information may also be displayed/printed as long as required information is “readily apparent.”
6. If records are downloaded to a physical storage device, the download must be retained on such device until the next download is prepared. FFLs must be able to present the most current version of the records in printed format at ATF’s request.
7. If the FFL prints out the records, the printout must be retained until the next printout is made.
8. Downloads and printouts may include antique firearms but not other merchandise.
9. Electronic acquisition and disposition records may be stored on an off-site server or device provided:
a. The records are readily accessible through a computer or device located at the licensed premises during regulation business hours; and
b. The FFL’s server is located within the U.S. or its territories OR if a host facility is used, the facility must have business premises within the U.S. or its territories and be subject to U.S. legal process.
10. Changes in remote storage location or cloud storage providers must be reported to the local ATF office within 30 days. The name and address of the facility must be included in the report.
11. FFLs must maintain acquisition and disposition records on a separate/partitioned database that cannot be intermingled with records associated with another federal firearms license.
12. Software must back up the acquisition and disposition records at least daily.
13. FFLs must retain all records in accordance with 27 C.F.R. 478.129, ATF Rul. 2010-8, and ATF Rul. 2011-1.
14. Upon discontinuance of business, FFLs must send required records to the ATF Out-of-Business Records Center in accordance with 27 C.F.R. 478.127. FFLs must print out records or download them to a physical storage device.
ATF Rul. 2016-1 does not supersede or revoke previously approved variances covering the use of electronic acquisition and disposition records.
ATF Rul. 2016-2
This ruling addresses electronic versions of the Form 4473, Firearms Transaction Record. This is the form that must be completed when an FFL transfers a firearm to an unlicensed transferee. Regulations in 27 C.F.R. Part 478, Subpart H, require that FFLs prepare Form 4473 in paper form with handwritten entries. The ruling specifically requires as a condition to use of an e-Form 4473 that Section A of the form be completed by the transferee while physically present at the seller’s premises. This new requirement is consistent with an instruction ATF recently proposed to the paper version of the Form 4473 (Federal Register notice of April 7, 2016, 81 Fed. Reg. 20424) and is apparently intended to prevent licensees from conducting this portion of a firearms transaction at offsite locations.
ATF Rul. 2016-2 supersedes ATF Rul. 2008-3 and all previously approved variances authorizing the use of an electronic Form 4473. The changes from ATF Rul. 2008-3 are underlined below:
1. The FFL must download from ATF’s website the most current electronic version of ATF e-Form 4473 OR acquire other software for this purpose.
2. The software must display clearly all the Notices, Instructions, and Definitions on the version of the Form 4473 approved by the Office of Management and Budget (“OMB”).
3. The software must create and populate the fields on the Form 4473 for each transaction and cannot populate Section A of the form based on previous transfers to the same transferee.
4. The transferee (buyer) of the firearm(s) must answer questions for Section A while physically present at the seller’s premises (including a qualifying gun show or event). The questions that appear on the computer screen must be legible and have identical wording as that on the OMB-approved Form 4473.
5. The software must allow the transferee/purchaser to revise his or her answers until such time that he or she completes the certification statement on the form. Once the certification is completed, the software must not allow further revisions to Section A.
6. The transferee/buyer must confirm answers in Section A with a signature and date, certifying that answers are true, correct, and complete and that he or she has read and understood the conditions, notices, definitions, and instructions on the form.
7. The transferor/seller then enters information into the computer for Sections B and D of the e-Form 4473. The questions must be legible and contain the same wording as the current OMB-approved Form 4473.
8. The transferee and transferor signature on the form may be electronic signatures captured via an electronic signature pad prior to printing or may be handwritten signatures on the printed copy of the e-Form 4473.
9. If the electronic signature pad does not operate properly, the FFL must obtain handwritten signatures on the OMB-approved Form 4473 or the printed copy of the e-Form 4473.
10. If the transferee/buyer cannot read and/or write, another person, excluding the FFL or its employees, may complete Section A of the e-Form 4473. Two persons, other than the FFL or employees, must then sign as witnesses. The transferee/buyer may electronically sign or mark the e-Form 4473. The two witness signatures must be handwritten in ink on the printed e-Form 4473. [NOTE: This requirement was not in ATF Rul. 2008-3 but has been ATF policy for many years. See ATF Form 4473, Notices, Instructions, and Definitions, Section A, Question 1.]
11. All NICS or State POC information must be entered accurately in the e-Form 4473 in the appropriate fields. These entries may be auto-populated or manually entered. The information may also be handwritten on the form after printing.
12. FFLs must contact FBI/NICS or the appropriate state agency to request authorization to transfer NICS data from e-Check into the computerized e-Form 4473.
13. Exceptions to NICS and State POC check requirements must be recorded on the e-Form 4473 in the appropriate fields.
14. FFLs who wish to maintain e-Forms 4473 for pending transactions must download the transactions to a physical storage device at the licensed premises as follows:
a. At least daily in an unencrypted format with the required information readily apparent;
b. Upon request of an ATF officer, within 24 hours of request;
c. Prior to discontinuance or change of the software, the database system, and/or the host facility; and
d. Prior to the FFL’s discontinuance of firearms business.
15. FFLs who wish to maintain e-Forms 4473 for pending transactions may store them on a computer server or device owned and operated by the FFL or through a host facility, provided that:
a. The e-Forms 4473 are readily accessible through a computer server or device located at the licensed premises during regular business hours;
b. The e-Forms 4473 documenting a pending transaction must be printed out upon request by any ATF officer;
c. The e-Forms 4473 documenting a pending transaction must be searchable by the transferee’s last name, address, and by firearms information, such as serial number, manufacturer, and importer.
d. The licensee’s server is located within the U.S. or its territories, or if a host facility is used, the facility must have a business premises within the U.S. or its territories and be subject to U.S. legal process;
e. FFLs must maintain stored e-Forms 4473 on a separate/partitioned database that cannot be intermingled with another licensee’s records; and
f. The system must back up the stored e-Forms 4473 on at least a daily basis.
16. FFLs who change a host facility must, within 30 days of the change, notify the local ATF area office of the name and address of the host facility.
17. If the transfer of the firearm(s) takes place on a different day that the transferee signed Section A, the transferee must complete Section C immediately prior to the transfer of the firearm(s). The software must not allow the electronic signature of the transferee to be automatically populated from the signature previously provided.
18. The e-Form 4473 must be printed, including instructions, at the time the transfer of the firearm is complete and prior to the transferee departing the licensed premises. The transferor must verify that the signature and date are present and in the appropriate fields on the printed ATF Form 4473.
19. In the case of denied, no sale, or cancelled transactions, the Form 4473, including instructions, must be printed and retained in accordance with the regulations.
20. If the transaction is not completed within the 30-day period after contacting NICS, the ATF Form 4473, including instructions, must be printed and the printout retained in accordance with the regulations.
21. FFLs must print all Forms 4473, including instructions, on 8-1/2” x 11” white paper. Pages must be stapled together and the copy must be an exact image of the current OMB-approved Form 4473. Pages may be printed single-sided or double-sided.
22. Printed Forms 4473 must be retained at the licensed premises in accordance with the regulations.
ATF Rul. 2016-2 states that the ruling does not apply to FFLs who use software that gathers information other than that set forth on the current OMB-approved Form 4473.
ATF Rul. 2016-3
This ruling addresses two separate record keeping issues. The first is consolidation of records of manufacture and records of disposition. The second is how to record changes to firearms that have already been logged into the acquisition and disposition records. Both issues were previously addressed in ATF Rul. 2010-8. ATF Rul. 2016-3 supersedes and replaces ATF Rul. 2010-8.
Regulations in 27 C.F.R. Part 478, Subpart H, require licensed manufacturers to maintain records of their manufacture or other acquisition of firearms and that those records be maintained separate from records of dispositions of firearms to nonlicensees. Comparison of ATF Rul. 2016-3 and ATF Rul. 2010-8 indicates no changes to the conditions for consolidation of manufacture and disposition records. ATF Rul. 2016-3 allows consolidation of these two types of records as long as the following conditions are met:
1. Within 7 days of the date of manufacture or other acquisition, the licensed manufacturer must record the following information for each firearm:
a. Date of manufacture or other acquisition;
b. Name of the person from whom the firearm was acquired;
c. Address of the person from whom the firearm was acquired if the transferor is a nonlicensee OR the complete 15-digit license number of the licensee from whom acquired;
d. Name of the licensed manufacturer (to include the licensed firearms manufacturer making the entry-discussed in more detail below) and licensed importer (if applicable);
f. Serial number;
g. Type; and
h. Caliber, size, or gauge.
2. Within 7 days of the date of sale or other disposition, beside the corresponding line item record of manufacture or other acquisition, the licensed manufacturer must record the following information:
a. Date of sale or other disposition;
b. Name of the person to whom the firearm was transferred (to include the licensed manufacturer-discussed in more detail below); and
c. Address of the person to whom the firearm was transferred if the transferee is a nonlicensee OR the Form 4473 serial number of the forms are filed numerically OR if transferred to a licensee, the licensee’s complete 15-digit FFL number.
3. For firearms dispositions to another FFL, the commercial record of the transaction must be retained separately from other commercial documents maintained by the licensed manufacturer and must be readily available for inspection on the licensed premises until the transaction is recorded in the acquisition and disposition record.
4. For firearms dispositions to a nonlicensee, the Form 4473 must be retained separately from the FFL’s Form 4473 file and be readily available for inspection until the transaction is recorded in the acquisition and disposition record. After the transaction is recorded, the Form 4473 must be retained alphabetically (by name of purchaser), chronologically (by date of sale), or numerically (by transaction serial number).
The ruling also sets forth the procedure to be followed when a licensed manufacturer makes changes to the model, type, caliber, size, and/or gauge of a frame or receiver, or assembly of a firearm. The ruling is a significant improvement to the procedure outlined in ATF Rul. 2010-8, because it requires that the firearm be logged in as inventory during the entire time the firearm is on the premises of the manufacturer. ATF Rul. 2010-8 required that the firearm be logged out of the acquisition record as a disposition to the licensed manufacturer, modified or assembled, then logged in as a new acquisition. FFLs were concerned about having firearms on their premises that were not in the acquisition record during the modification or assembly process. ATF Rul. 2016-3 addresses that issue by keeping the firearms logged in as acquisitions during modification and delaying the disposition entry until the modifications are complete.
ATF Rul. 2016-3 sets forth the following procedure for FFLs to use when adding parts to frames/receivers, changing caliber or gauge, or making other changes that change the type of the firearm. We underline the changes from ATF Rul. 2018-8 below:
1. The firearm must remain logged into the acquisition and disposition record until the changes or conversions are complete.
2. Once the change and/or conversion is complete, the licensed manufacturer then logs the firearm out of the acquisition and disposition record as a disposition to itself using the license name and license number appearing on its FFL. The date of the disposition is the date the change, conversion, or assembly is complete.
3. The same date the disposition entry is made the licensed manufacturer must record the new firearm on a separate line of the acquisition and disposition record as an acquisition from itself.
The three rulings ATF published on May 3, 2016, make significant revisions to record keeping requirements imposed by the Gun Control Act and clarify ATF’s policies. The rulings authorize record keeping more consistent with modern business practices used by other industries and are a step in the right direction. FFLs should study the rulings carefully to determine whether their software systems and procedures are consistent with the rulings and take appropriate action.