The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has the authority to revoke a federal firearms license if the holder has willfully violated any provision of the Gun Control Act (GCA) or any regulation issued under the GCA. Fortunately for federal firearms licensees (FFL or FFLs) ATF generally revokes fewer than 100 licenses per year. ATF recognizes that license revocation is the death penalty for a business and imposes this sanction sparingly; limiting it to those FFLs agency officials believe are unlikely to operate their businesses in compliance with the law.
What if you are one of the FFLs who goes through an administrative revocation hearing and then loses your license? Alternatively, you may choose to surrender your FFL in lieu of going through a stressful and expensive revocation proceeding. In either instance are you forever barred from participating in the firearms industry in any way? This article addresses the options for persons who previously held FFLs to continue working in the firearms industry.
The GCA requires all persons engaging in the business of manufacturing, importing or dealing in firearms to obtain a license issued by ATF. FFLs are required to create and retain records of acquisition and disposition; manufacturers and importers are required to mark the firearms they manufacture and import; transfers of firearms to unlicensed purchasers must comply with the interstate controls of the GCA and be recorded on ATF Form 4473; and FFLs must comply with all other requirements of the law and regulations.
ATF has the right to conduct warrantless inspections of FFLs (1) in connection with a criminal investigation of a person other than the FFL; (2) for purposes of firearms tracing; and (3) for purposes of conducting an annual inspection to ensure compliance with the record keeping provisions of the GCA. Inspections that do not fit within one of these three criteria must be conducted with the consent of the FFL or with a warrant issued by a federal judge. The vast majority of violations ATF cites against FFLs occur during annual compliance inspections.
The GCA provides that ATF may, after notice and opportunity for a hearing, revoke any GCA license if the holder of the license has willfully violated any provision of the GCA or any rule or regulation prescribed under the statute. The majority of federal courts have interpreted the term “willfully” to mean a violation of the statute or regulations that is deliberate, knowing or reckless. To prove a willful violation the government must provide evidence that the licensee knew of the legal obligation and purposefully disregarded or was plainly indifferent to the requirement. In most reported cases, ATF establishes willfulness through previous Reports of Violation issued during annual compliance inspections. ATF may also rely upon the fact that field divisions previously issued warning letters or held a warning conference with the licensee for the same or similar violation for which the license is proposed for revocation.
Licensing provisions of the GCA require ATF to issue a license to any person who meets the criteria outlined in the statute (18 U.S.C. §923(d)(1)). One of the criteria is that “the applicant has not willfully violated any of the provisions of this chapter or regulations issued thereunder.” Thus, if ATF believes a particular applicant has committed willful violations of the GCA or regulations, ATF is not required to issue the license. ATF may also deny a license application on the basis of a false statement on the license application, a violation of 18 U.S.C. §924(a)(1)(A).
New License Application
As stated above, the licensing criteria of the GCA give ATF the authority to deny a license application submitted by a person who previously committed willful violations of the GCA or regulations. It should not surprise anyone that ATF uses this authority to deny an application submitted by the same individual, corporation or partnership whose license was, at some point in the past, revoked or surrendered due to willful violations. In such situations ATF has concluded the FFL committed willful violations of the law or regulations and is unlikely to operate the firearms business in compliance with the law. Under these circumstances, the agency will probably not look favorably on issuance of a new license that would allow the applicant to continue manufacturing, importing or dealing in firearms. Approving the application would invalidate all of the agency’s efforts in revoking the license.
However, a more difficult question is presented if the applicant is an individual who was a corporate officer of the revoked or surrendered FFL. The “applicant” would not be the same entity as the corporate FFL that had its license revoked, and ATF would, theoretically, have the authority to issue the license. The same issue is presented if the applicant is a newly created corporation and the corporation’s officers include individuals who were “responsible persons” for the former revoked FFL (a “responsible person” is defined on the license application, ATF Form 7, as a sole proprietor and, in the case of a corporation, partnership or association, any individual possessing, directly or indirectly, the power to direct or cause the direction of the management, policies and practices of the corporation, partnership or association, insofar as they pertain to firearms. ATF generally takes the position that all corporate officers, corporate directors and majority shareholders are responsible persons who must be disclosed on the license application. ATF may also require that managers be listed as “responsible persons” if their duties give them sufficient authority over the firearms business). Again, the corporate entity would be different from the corporation whose license was revoked, and the statute would give ATF the authority to approve such an application.
Unfortunately, ATF generally views such applications as presenting “hidden ownership” because of the involvement of the former FFL or responsible persons of the former FFL. ATF’s practice in such situations is to disapprove the new application based on failure to disclose the involvement of the former FFL or responsible persons in the new business. Alternatively, ATF may deny the new application on the basis that the applicant is the successor of the former FFL and impute the former FFL’s willful violations to the applicant. Both theories fall under the “hidden ownership” theory which is discussed below.
In a line of cases issued from 1972 to 2014, federal courts have upheld ATF denial of license applications submitted by corporations and individuals on the basis of what ATF officials refer to as “hidden ownership.” Reported cases involve new corporations created following the revocation of an FFL or situations where responsible persons from a revoked or surrendered FFL go to work for another licensee. In these cases ATF takes the position that the applicant’s failure to disclose the involvement of certain responsible persons on the license application is a willful false statement that warrants denial under the GCA. Even if the alleged responsible person is purported to be a mere employee without the authority to direct the operations of the firearms business, ATF may not agree. It may be difficult to persuade ATF that the involvement of an official from a revoked FFL in the new business is other than as a responsible person. Accordingly, responsible persons of former FFLs whose licenses were revoked or surrendered due to willful violations of the law and regulations may find it difficult to play any role in a new FFL.
If the new business is operating at the same premises as the revoked/surrendered FFL, was formed shortly after revocation of the previous FFL and acquires the inventory of the former FFL, ATF may conclude the new business is a successor of the former business. In these situations, even if the responsible persons are different, ATF may conclude the new applicant is the successor of the former FFL and impute the willful violations of the revoked FFL to the new applicant. Alternatively or in addition to this theory, ATF may conclude that one of the primary purposes in forming the new corporation was to circumvent the prohibitions of the statute. ATF may conclude that the new corporation was formed, in whole or in part, so that the old business can continue to operate under a new name and under a different corporate entity. In these situations it is not necessary for ATF to find a willful false statement on the license application. The license application will be denied on the basis that the new company is a sham created to get around the previous company’s license revocation, and the application will be denied on the basis of the predecessor’s willful violations of the GCA and regulations.
ATF’s position on hidden ownership and the federal courts’ support thereof will make it difficult for a revoked FFL to play a significant role in a different firearms business. This will be particularly true for a sole proprietor, but it may also apply to an individual who was an officer or other responsible person for an FFL whose license was revoked or surrendered due to willful violations. There should be no problem with such individuals working for other members of the firearms industry as mere employees who are not responsible persons. Nonetheless, such individuals should be prepared to provide evidence to ATF that their role in the firearms business is limited to avoid endangering the license of the business on the basis of hidden ownership. The author discusses this option below.
Options for Individuals Associated with Revoked or Surrendered FFLs
Individuals whose FFLs are revoked/surrendered or who are responsible persons for such FFLs may continue to work in the firearms industry in several ways.
Firearms Parts Business
Individuals associated with revoked or surrendered FFLs may continue to manufacture, import, export and deal in parts that are not regulated as “firearms” under the Gun Control Act or National Firearms Act. Manufacturers and exporters of firearms parts and components must register with the Department of State. The International Traffic in Arms Regulations in 22 C.F.R. Part 122 and information on State’s website (www.pmddtc.state.gov) provide guidance on the registration process. With the exception of firearm frames or receivers (which fall within the GCA definition of “firearm”) no GCA license is required to manufacture, import, export or deal in firearm parts and components.
Importers of parts and components for firearms must register with ATF under the Arms Export Control Act. The fact that an individual or company has previously violated the Gun Control Act or implementing regulations is not a legal basis for ATF to deny a registration application. The easiest way to register as an importer is to submit the registration application, ATF Form 4587, through the www.pay.gov website. The registration fee is $250 per year. Importation of parts and components for firearms requires an approved ATF Form 6 import permit from the ATF.
Persons who choose to engage in a firearms parts business must be extremely vigilant about so-called “80-percent receivers.” This issue was addressed in detail in the article published in Small Arms Review, Vol. 21, No. 3 (April 2017). If you choose to manufacture, import, export or deal in unfinished items that you believe have not reached a stage of manufacture where they are classified as “firearms,” you should take steps to ensure that ATF agrees with the classification. The consequences for you and your business if the agency concludes otherwise are significant, and not in a good way.
Employment with Other FFLs
There is no legal bar to any person working for a federal firearms licensee, even if the employee was previously involved with a revoked or surrendered FFL. The author notes, however, that if employment requires possession of firearms or ammunition, the individual may not be a felon, unlawful drug user or other category of prohibited person listed in 18 U.S.C. §922(g). I also note that if the individual previously held an FFL that was revoked or surrendered due to willful violations, or if the individual was a responsible person with such an FFL, ATF may have problems if such an individual is a responsible person with another FFL. As explained above, ATF may conclude the involvement of a responsible person from a previously revoked or surrendered FFL indicates hidden ownership by the predecessor FFL whose license was revoked. ATF could impute the violations of the revoked FFL to the new employer and attempt to revoke the successor’s license on the basis of those violations.
If the successor FFL fails to report the new employee as a responsible person on their license application (whether a new application or a renewal application), ATF could take the position the omission is a willful false statement that warrants denial of application.
If employment with another FFL is a possibility, advance consultation with the appropriate ATF field division is an option for avoiding problems. Explaining the role of the individual in the FFL and providing a written job description may avoid misunderstandings about whether the individual is a responsible person. Approaching ATF in advance may also avoid any charges for a false statement if the individual is not listed as a responsible person on the original or renewal application.
Submission of New License Application
As stated above, the GCA allows the ATF to deny a license application from an applicant who has willfully violated the statute or regulations. ATF may also deny a license application if any of the responsible persons were previously associated with an FFL that was revoked or surrendered because of willful violations. However, there is nothing in the statute that requires ATF to deny a license to a previous willful violator. ATF has the discretion to issue a license even if the applicant had its license revoked or the applicant surrendered its license in lieu of revocation.
The author is aware of situations where the agency has used its discretion to issue licenses to companies or individuals who previously violated the GCA. I caution that such license issuance is rare, as ATF reserves license revocation for companies it believes are not likely to operate in compliance with the law. Allowing the same company to re-enter the firearms industry is an unusual step and one that most ATF field divisions would view with skepticism. Convincing ATF that a former FFL is deserving of a second chance will be an uphill battle. Situations where ATF has approved such applications in the past involved companies that (1) have stayed out of the firearms business for a significant time period, e.g., at least 3 years; (2) demonstrate the company’s commitment to regulatory compliance through adoption of a comprehensive compliance program; (3) no longer employ personnel directly responsible for the company’s previous willful violations; and (4) are able to satisfy ATF officials that the company will operate the firearms business in compliance with the law.
The author cautions that any applicant who pursues this option will face significant challenges in getting the FFL issued. Consultation with qualified counsel is essential before considering this route.
License revocation is a sanction ATF imposes on those few FFLs the agency believes have committed serious, willful violations of the GCA or regulations and are unlikely to comply with the law in the future. Circumventing the revocation or surrender of a license is difficult, as ATF is unlikely to approve a new license for a business if there is evidence the applicant is a successor in interest of the predecessor FFL or if ATF believes there are false statements on the application relating to responsible persons. The good news is there are options for individuals associated with a revoked or surrendered FFL to continue working in the firearms industry. Establishing a firearms parts business or being employed by another FFL are viable options to consider.