Compliance Inspections Under the Gun Control Act – Know ATF’s Limitations and Boundaries
By Teresa G. Ficaretta, Esq. and Johanna Reeves, Esq.
This article appeared in Small Arms Review in December 2015. Legally Armed: V19N10
If you hold a federal license as a manufacturer, importer, or dealer in firearms, a call from the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) advising you of an upcoming compliance inspection may result in anxiety, uncertainty, and even terror. This article will discuss ATF’s legal authority to conduct warrantless compliance inspections under the Gun Control Act of 1968, the agency’s limitations under the statute, how ATF decides who to inspect, and tips on how to prepare for an inspection. Information about the process may help you banish the anxiety and be well-prepared and confident on inspection day.
ATF’s Authority to Conduct Compliance Inspections
The Gun Control Act of 1968 (GCA), 18 U.S.C. Chapter 44, gives ATF the authority to inspect the business premises of licensed importers, licensed manufacturers, and licensed dealers at limited times and for limited purposes. The statute, 18 U.S.C. § 923(g)(1)(A), allows ATF to conduct inspections of records required by the GCA and firearms and ammunition kept or stored by the licensee at the premises. ATF may conduct such inspections without a warrant at any time for the following reasons: (1) to inspect records relating to a firearm traced to the licensee or to determine the disposition of one or more particular firearms during a criminal investigation; and (2) in the course of a reasonable inquiry during the course of a criminal investigation of a person or persons other than the licensee. ATF may also conduct a warrantless inspection of records to ensure compliance with the recordkeeping requirements of the GCA, as long as such inspection is not conducted more than once during any 12-month period. The latter inspection, the so-called annual compliance inspection, is the one Federal Firearms Licensees (FFLs) are most likely to experience.
The GCA also gives ATF the authority to conduct inspections of records and inventory by obtaining a warrant from a Federal magistrate based on “reasonable cause.” A reasonable cause warrant is something less than “probable cause,” and is intended to guard against unreasonable exercises of power and to limit the scope of the intrusion on the FFL’s property. ATF rarely uses its authority to obtain reasonable cause warrants, relying instead on warrantless compliance inspections or obtaining a probable cause warrant under Rule 41 of the Federal Rules of Criminal Procedure.
It should be noted that prior to 1986, ATF had authority to conduct as many warrantless compliance inspections as it wished. In 1986 Congress enacted the Firearms Owners’ Protection Act (FOPA), which included new limitations on the agency’s inspection authority. Legislative history for FOPA indicates Congressional concern about ATF using its authority to harass dealers by spending hours or days examining records without any reason to expect evidence of violations. See Halbrook, Stephen, Firearms Law Deskbook, 2014-2015 Ed., §§ 3:4, 3:5, Thompson Reuters, 2014.
ATF’s authority to conduct warrantless compliance inspections was well established prior to the GCA’s amendment by FOPA. The Supreme Court in U.S. v. Biswell, 406 U.S. 311 (1972), held that the GCA’s grant of warrantless inspection authority to ATF was constitutional under the Fourth Amendment. Specifically, the Supreme Court held that an FFL’s submission to lawful authority and permit a warrantless compliance inspection was similar to a householder’s acquiescence to a search pursuant to a warrant. The court noted that in the context of a regulatory inspection of business premises carefully limited in time, place and scope, the legality of the search depends not on consent, but on the authority of a valid statute. The court also noted that the GCA inspection provisions are not inconsistent with the Fourth Amendment because the licensee is on notice of ATF’s limited authority to inspect without a warrant and agrees to do business under those conditions.
Statutory Limits on Warrantless Inspections
ATF’s authority to conduct warrantless inspections is clearly limited by statute. The GCA provides that such inspections, whether the annual compliance inspection or an inspection based on a reasonable cause warrant, must be conducted during “business hours.” The term “business hours” is not defined in the statute, but is generally understood as the hours during which the FFL is open for business as indicated on ATF Form 7, Application for Federal Firearms License. Block 13 of the form is titled “Hours of Operation of Applicant’s Business” and has a grid with days of the week for applicants to indicate open time and closing time for Sunday-Saturday. The hours indicated on the Form 7 are the only hours during which ATF is authorized to conduct warrantless compliance inspections. Federal courts have excluded evidence of violations of the law obtained during warrantless inspections of FFLs conducted outside the hours listed on the ATF Form 7.
Inspection at Place of Business
Section 923(g)(1) of the GCA makes it clear that warrantless inspections of FFLs may be conducted only at the place of business (including places of storage) listed on the license application. If the licensed premises consists of only a portion of a building, only that portion may be inspected. The licensee’s consent or a warrant is required for inspection of any other portion of the premises. The GCA allows FFLs to conduct business temporarily at gun shows or events in the same state where the FFL’s premises are located, and this provision allows ATF to inspect the records and firearms inventory located at the gun show or other temporary location.
Inspection of Records and Inventory Only
It is important to emphasize that ATF’s authority to conduct warrantless inspections is limited to examining records required under the GCA and firearms and ammunition stored at the licensed premises or at separate, unlicensed storage facilities. ATF does not have authority to inspect commercial records, including invoices, bills of lading, records of production, or any other record not required to be kept by regulations in 27 C.F.R. Part 478.
What about records required by the National Firearms Act (NFA), including Forms 2, 3, 4, 5, and 9? ATF has authority to enter, during business hours, the premises (including places of storage) of any importer, manufacturer, or dealer in firearms, to examine any books, papers, or records required to be kept pursuant to the NFA or implementing regulations. However, warrantless NFA inspections may be conducted as often as ATF deems necessary, as such inspections are not limited by the annual inspection rule of the GCA.
One Inspection Every 12 Months
The GCA authorizes only one annual compliance inspection. If the Industry Operations Investigator (IOI) conducting the inspection does not finish the inspection during the initial visit to the premises, the IOI must make it clear the inspection is not concluded. One compliance inspection may take a number of days to complete, depending on the number of records and the amount of inventory to be examined.
If ATF completes a compliance inspection, issues a Report of Violations, or otherwise advises the FFL that the compliance inspection is complete, ATF cannot return to the premises to continue the inspection without a reasonable cause warrant, a criminal search warrant, or with the licensee’s express consent. ATF must wait for another 12 months before returning to the premises for another warrantless compliance inspection. Generally, the clock begins to run the day following the last day of the ATF inspection. However, the authors are unaware of any official ATF guidance on this issue and ATF field divisions may view it differently.
Inspection for Purposes of Determining Compliance Under GCA
Warrantless compliance inspections may be conducted only for the purposes of determining the licensee’s compliance with the GCA and regulations issued thereunder. ATF may not use its authority as a pretext to go on a fishing expedition for evidence of crimes committed by the licensee. For example, a Special Agent showing up to conduct a warrantless compliance inspection is a red flag that the visit is not a routine compliance inspection. Special Agents conduct criminal investigations, and the only reason for their participation is to look for evidence of a crime or to seize firearms (IOIs do not have seizure authority). Consequently, if a Special Agent shows up at your premises for an alleged compliance inspection, contact counsel immediately.
Even if IOIs conduct the compliance inspection, the inspection must be focused on records required under the GCA and firearms and ammunition in inventory. If IOIs request access to commercial records, customer lists, lists of suppliers, or any other records not required by the GCA, FFLs should contact counsel for guidance before providing such documents to ATF. There may be circumstances when it is in your interest to provide these documents to ATF. For example, if there are open entries in the acquisition and disposition record but no firearms in inventory that match those entries, a commercial sales invoice showing a lawful sale to another FFL could be produced. Providing ATF with this record would be preferable to ATF’s issuance of a Report of Violation charging failure to report a theft or loss of firearms, as this type of violation is one that ATF takes very seriously and may result in a recommendation for license revocation. Again, contact qualified counsel for advice on whether you should or should not provide ATF with records that are not required under the GCA or implementing regulations.
Advance Notice of Inspection
ATF is not required to provide FFLs with advance notice of a compliance inspection. As long as IOIs show up for the inspection during the business hours indicated on the license application, the FFL is required to provide access to the licensed premises. Refusal of the FFL to provide ATF entry to the licensed premises gives ATF legal authority to revoke the license.
Even though not required, ATF generally contacts FFLs in advance to make an appointment for a compliance inspection. This works to ATF’s advantage, as well as that of the FFL, as it ensures someone is present to grant IOIs access to the premises, show them where the records and inventory are stored, and answer any questions. ATF will generally accommodate the needs of FFLs in scheduling the compliance inspection. However, repeated delays in scheduling an inspection or failure to show up for scheduled inspections do not bode well for the licensee. Remember that the fate of your license rests in the hands of these ATF employees. It is therefore in your best interest to schedule the inspection promptly, show up at the appointed time, and cooperate with the IOIs in conducting the inspection.
How Does ATF Decide Which FFLs to Inspect?
A Department of Justice Office of Inspector General Report issued in 2013 provides insight into how ATF determines which FFLs to inspect. The report is titled “Review of ATF’s Federal Firearms Licensee Inspection Program” and is available on the Department of Justice website. The report indicates that ATF generally sets a 3- or 5-year compliance inspection cycle for FFLs depending on whether the FFL is in a “source” or “non-source” state by the number of firearms sold or recovered at crime scenes as determined by trace requests submitted to ATF’s National Tracing Center. “Source” states are defined as those where crime guns are first purchased, and “non-source” states are those to which crime guns have traveled. Compliance inspections may also be initiated based on ATF criteria identifying the FFL as high risk or because of a specific request from ATF Headquarters. High risk indicators include (1) a high number of firearms used in crime were traced to the licensee; (2) numerous multiple sales by an FFL to a single individual; (3) theft or loss of firearms; (4) NICS denial ratios; (5) location in a high crime or border area; and (6) referrals from state or local law enforcement. An example of a specific request from ATF Headquarters might be a referral by the Imports Branch advising the ATF field division where the FFL is located there were indications the FFL was importing firearms in violation of law.
If you have had an ATF compliance inspection, you may already know that if violations are found during the inspection, you may be scheduled for a “recall” inspection the following year. The purpose of the recall inspection is to determine whether the FFL has corrected the violations that occurred the year before and is operating in compliance with the law. Recall inspections may be of limited scope, focusing on the areas of weakness indicated the year before. IOIs also have the discretion to expand the inspection into a full-scale compliance inspection if they are concerned about the licensee’s overall compliance. FFLs facing recall inspections need to take them seriously, as even seemingly insignificant recordkeeping violations provide a legal basis for license revocation if they are repeated.
How to Prepare for an ATF Compliance Inspection
The ATF field office has contacted you and scheduled a compliance inspection for a specific date. Take the time before the inspection to get your required records in order and make sure all records are available for the investigators. Conduct an inventory of your firearms and compare each firearm to its entry in the acquisition and disposition record, and then compare the records to your inventory. Review Forms 4473, multiple sale reports, and other required records, and make sure all records are filed in accordance with the regulations. If you have any recordkeeping variances, have copies available for the inspection. If you have a computerized recordkeeping system, make sure you are able to print out or download the records in the system if requested during the inspection.
Inspection Day – What to Expect
ATF investigators have discretion to determine how much of your inventory and how many required records to inspect. They may examine only those records dating from the closing date of your last compliance inspection, or they may go back further. They may examine 100 percent of your records for the period in question, or they may conduct a sampling of the records. Whatever they decide, provide them with access to any records requested. Remember that the sooner they complete the inspection, the sooner they are out of your business.
What should you do if an ATF IOI requests use of your copier to make copies of 4473s, acquisition and disposition records, and other required records? Do you have a legal obligation to make your office equipment available to them? The answer is no. Your only legal obligation is to make the records available for inspection, and the government cannot compel you to allow the use of your copier, fax machine, telephones, or other office equipment. If the investigators need to make copies of records, they can use their cell phones to take photos of the records or they can bring a portable copier to the premises to make copies with government-supplied copy paper.
You should be aware that ATF’s policy on copying of records is that IOIs should make copies only if they believe the record provides evidence of a violation of the law. There should be no wholesale copying of all 4473s or all multiple sale forms so the IOI may examine them later. If you observe an IOI making numerous copies of a large number of records, you should question the investigator about the need for the copies. If you are not satisfied with the answer, contact counsel.
What should you do if the ATF investigator advises you that he or she is removing some of your original records from the premises? Does ATF have the authority to seize the records? There are differing views on ATF’s authority, with some practitioners advising that a seizure warrant is required for removal and others taking the position that ATF’s inspection authority gives the agency inherent power to remove records when they contain evidence of violations. There is agreement among lawyers on two things: first, ATF must give you a receipt for your records, and second, if they take your originals, you should make a copy to retain in place of the originals. This is another area where you should contact qualified counsel for guidance before the records are removed.
ATF’s warrantless compliance inspections must be limited in time, scope and purpose and cannot be used as a pretext to obtain evidence of criminal violations by the licensee. If you suspect ATF representatives conducting a compliance inspection are exceeding the limitations outlined in this article, you should contact counsel immediately for guidance. Don’t allow overzealous agency representatives to violate your Fourth Amendment rights.