So  you are a FFL who conducts business in Pennsylvania.

[For those of you who are not an FFL, a little background is perhaps needed. When you are an FFL, you are generally subject to unannounced, periodic auditing by the BAFTE. The law allows ATF to conduct one warrantless inspection of your inventory and some specific records every 12 months for the purpose of ensuring compliance with the record-keeping requirements of the Gun Control Act, the NFA, and ATF regulations. When there is an audit, the ATF will assign an Industry Operations Investigator (IOI) to physically reconcile and audit the guns and regulated items on the premise as well as any NFA paperwork as well as the Dealer’s Acquisition and Disposition Record (called the A&D record) which is required in 27 CFR 478.125(e) and has a required retention time of 20 years, as well as the ATF Form 4473s which must be kept for all Firearms Transfers for 20 years per 27 CFR 478.129(e) and other related forms.]

An “old school” A&D record book

It is a delicate line that an FFL must walk. An FFL is required to a degree to be cooperative with an audit and with the assigned IOI. Just remember that anything that you do or say can and will be used against you in any regulatory or criminal prosecution. Although you will find that IOIs are very nice people and extremely friendly, there are no “off the record” conversations with them. The degree of compliance outside of the required items to be disclosed is very fact dependent situation.

To simply have a Pollyanna view of the world that you “never make mistakes” or “didn’t mean to make mistakes” or that “these are very minor mistakes” and that the ATF will “understand” is really dangerous. Remember, violations can lead to a huge fine, revocation of the FFL or even jail. Various courts have held that there does not have to be criminal intent to form a willful violation and then a revocation of an FFL. A single violation can be termed “willful” and the court’s have found that single violation to justify revocation or even prosecution. Multiple violations are not required. See Dick’s Sport Center, Inc. v. Alexander. The ATF is not required to allow for any sort of escalation of punishment such as a verbal warning to a written warning to revocation or prosecution. They can jump right into revocation and/or prosecution.

So, it is always best to have an attorney on standby. It is always best to already scout out an attorney for when the ATF comes. Trying to find someone who knows regulatory law as well as criminal law after the fact is a very tough proposition. In the ideal world, you need to have someone who knows both worlds and navigates them fluidly. We, at The McShane Firm, have a long tradition rooted in criminal law. Our firm was built on that. We are also experienced in regulatory law. We are happy to simply chat with any FFL for free to get to know one another, just in case we are needed in the future. That initial chat is totally free. The purpose is simply a “getting to know you” type of conversation.

Waiting until the IOI issues a Report of Violations is not an optimal time to try to find an attorney. Hoping for a warning letter or navigating a warning conference alone is not advisable. No one at ATF will think that you have something to hide by involving a lawyer. In fact, many ATF IOIs have commented to us that they appreciate having a knowledgeable attorney who understands this area of the law and who is constructively involved in the process. It tends to reduce mistrust and friction.

Just like any enterprise that involves a large volume of paperwork, it comes to pass that sometimes forms are incomplete, missing or not properly filled out. The ultimate question will be how will the ATF and any Assistant United States Attorney (AUSA) involved in all of this will view these errors? Will it be handled criminally, through the regulatory scheme or as an learning opportunity?

That difference can and will be very big.

If it determined to be criminal in nature, then the prospect of jail is always there. Further, if you are convicted of most of the typical violations, then you will no longer be an FFL or likely work in the industry. Plus, you will be not be able to possess or use a firearm under 18 USC §922.

If these mistakes are determined to be regulatory in nature and do not rise to the level of criminal conduct, it can lead to a revocation of your FFL through the §923(e) mechanisms, or a heavy fine, or both. The revocation of an FFL is a highly technical process involving hearings, potential appeals to the US District Court for a de novo review, and then potentially an appeal to the Circuit Court of Appeals and even the US Supreme Court. If revocation is pursued, procedures are followed as specified under Title 27 Code of Federal Regulations Part 478. It also involves succession planning so that your brand, your built up goodwill, and your dream will not die.

If it determined to be a learning opportunity, then it will be documented and will invite future extreme scrutiny.

Here are the top issues that we see:

1. Items not in the A&D records. Usually this mistake is simply due to a misunderstanding as far as what must be put in the A&D record and is nothing nefarious. Typical issues include going past the seven days to put dispositions into the A&D properly and fully. We have also seen discrepancies between the 4473 date which shows the actual transfer date and the A&D record date. There can be confusion as to what date to put in the A&D. Some FFLs honestly mistakenly believe that it is the date that they get around to putting it in the A&D as opposed to the transfer date should be that recorded date. Some smaller volume FFLs innocently blur the lines between their privately owned guns and those that are part of their business.  Some FFLs may mistakenly put their own private use (never intended for sale) carry or home defense weapons into their A&D or vice versa. Small business owners often commingle their private and business accounts so that line is hard to discern. We also see a large, steep and sometimes dangerous learning curve for people who are brilliant at gun sales, but have never run a business before. They may be great at customer service, know the products inside and out and can sell like none other, but they hate paperwork because they are very bad at it. Maybe the owner crossed that threshold of being a one man or woman show to becoming successful beyond their wildest dreams, added a bunch of employees who were not involved in gun sales before and maybe not have attention to detail. Maybe they do not use an automated A&D record system. Nevertheless all of these truly innocent in intent scenarios have the potential to be misconstrued by the ATF. As such, it is something that is very serious. Getting the ATF or the AUSA to understand that this is not criminal in nature in that the items not in the A&D records weren’t going to ISIS or El Chapo or some crazy imagined intent is what a skilled attorney can do depending on the facts. Trying to get the ATF or AUSA to understand that this is a great (but very expensive) learning opportunity is a skill for sure that comes with experience.
2. Failing to keep the proper records. This generally comes from three main sources: the A&D records; the ATF Form 4473s (even cancelled or not completed transfers with a 4473 must be kept); and ATF Form 3310.4s regarding the Report of Multiple Sale or Other  Disposition of Pistols and Revolvers. The number one mistake in 4473s in our experience is failing to have the purchaser fill out his or her full middle name or NMN if there is no middle name. Yes, that is a technical violation. This is why staff has to be well trained, a secondary reviewer employed and periodic internal audits completed. In another example, sometimes folks panic when they realize that they honestly forgot to file the Form 3310.4 when they realize non-concurrent multiple handgun sales for the same person within that same period, and then bury their head in the sand in hopes that it will not be found. This is not wise. Or they simply because of high volume or different staff completing the transactions, it goes unnoticed. Then there are occasions due to a mistaken belief in the law that 4473s are not filled out at all for long guns. From the criminal law prosecution perspective, these fit into two possible forms of prosecution: (1) Willfully failing to keep records- 18 U.S.C. § 922(b)(5) five years per occurrence or (2) Knowingly failing to keep records- 18 U.S.C. § 922(m) one year per occurrence. We are seeing more and more of these cases. These types of allegations require a very good criminal trial attorney, and not simply someone who understands the regulatory side of the equation.
3. Unlawful possession or transfer of a NFA item without the appropriate Form 3 (transfer between SOTs) or Form 4 (Application for Tax Paid Transfer and Registration of Firearm). Depending on the circumstances, if there is a conviction, there is a maximum sentence of five or ten years incarceration per occurrence. These types of allegations require a very good criminal trial attorney, not simply someone who understands the regulatory side of the equation.
4. Missing firearms or regulated items. This also happens. No retail establishment has total and complete inventory control. In fact, it is so prevalent in the retail world it has earned a term. It is called “shrinkage.” Whether you are selling packs of chewing gum or widgets, there is shrinkage. It is a fact of commercial and retail life. Firearms or related items are just like other inventoried items, but are highly regulated. They too are subject to shrinkage. If items are discovered to be lost or stolen, then it is imperative that you contact your attorney as he or she will help guide you through the proper process of reporting the missing items. There are also specific methods to account for it in the A&D record. There are also specific ways to report if it is found. Hoping that it will magically appear or that the ATF IOI on the audit will also miss it is a poor life decision. Worse yet, reporting a truly missing gun as scrapped it a huge problem if it is later recovered, especially so if it were used in a crime. Sometimes, the solution is to engage in regular self-audits, invest in inventory control software and the like in order to try to minimize this leakage. This is also a very serious situation. The difference between a criminal disposition, a regulatory disposition or a valuable learning experience can be influenced by having the right attorney.
5. Keeping inventory offsite. The FFL has listed on it a primary place of business. An FFL is allowed to temporarily conduct business at an alternative site such as a gun show. But this is temporary in nature. There is an approved process for off-site storage. Sometimes, largely out of convenience, this is not followed. This can be a large problem on the regulatory side.
6. Failing to timely respond to the Tracing Center. Some FFLs who have never had an Tracing Center inquiry do not understand the process or its importance. Again, the key is to have this untimely or incomplete response not framed as willful behavior. However, at the time of the inquiry, you do not know if this inquiry means that you a potential target or merely a witness. So it is best to get an attorney involved, just to be safe.
7. Making materially false statements to the IOI. In some circumstances, an FFL might be tempted to not tell the entire unvarnished truth to the IOI during the audit. This is human nature when someone is scared. It is called minimization. However, an incomplete truth is the functional equivalent of a complete lie in the eyes of some federal prosecutors. So, again, it is best to put your attorney on standby during the audit. Checking in with the attorney during the audit is a very wise idea prior to making even “off the cuff” statements.
8. Surreptitiously tape recording the conversation with the IOI. Pennsylvania is a two party state. While not per se a federal crime, it is a state felony offense. Even if you are thinking to yourself while recording “I want a recording of this just to keep everyone honest,” that is a crime if you do not have the affirmative consent of the other person. This goes for in-person or even over the phone audio.

Sadly, gone are the days of presuming the best in people. Sadly, we live in the day and age of destruction where people look to destroy successful people and/or up and coming businesses. Our government is perhaps a reflection of or culture or our culture a reflection of our government. The root cause of this is beyond the scope of this blog post. But the day and age of even the lowest volume FFL not having a good relationship with a great criminal law and regulatory attorney are over. Risk mitigation is the smart path. This is especially so with the new emphasis on gun control from the White House. If you are an FFL or considering to become one, please consider giving us a call so we can get to know one another. That initial call is free. Hopefully, you will never need us, but you can rest assured that we are here.