Orchid Advisors - A Working Guide to The Firearms Industry...

A Working Guide to The Firearms IndustryATF Compliance

Developed in conjunction with

OrchidAdvisorsThe Firearm Industry’s Trusted

Compliance & Operations Experts™

The Firearm Industry’s TrustedCompliance & Operations Experts

CMYK: 25/96/82/20#9F2531

CMYK: 0/0/0/90#FFFFFF

CMYK: 0/0/0/70#666666

PANTONE 704*CMYK: 25/96/82/20RGB: 160/38/50

Black 90%CMYK: 0/0/0/90RGB: 65/64/66

Black 65%CMYK: 0/0/0/65RGB: 119/119/122

Black 40%CMYK: 0/0/0/40RGB: 167/169/172

#F75C00#993333 (Web Safe) #414042 #666666 #999999

PRINT

WEB

PRIMARY SECONDARY

*Consult with your printer on Pantone 704 and CMYK process matching.



™

™

™


™

™


™

™

ContentsA Word on Operational Compliance / 4The Gun Control Act of 1968 / 4Having a “Sporting Purpose” (Importing Restrictions) / 6ATF Compliance Inspection / 7A&D Accuracy is the Cornerstone of Compliance. / 9A&D Book Management / 10Changes to the A&D Books and Notes / 17Accurately Capturing Serial Numbers and Other Data / 19Shipping and Receiving: Acquisitions and Dispositions / 20SKU and Material Number Management / 21Firearm Packing / 23Controlling Scrap Dispositions / 25Firearms Marking / 26Marking Time Constraints and ATF Ruling 2012-1 / 32Governance / 33Class 3 Crash Course - Dealing with the NFA / 36Common Errors and Issues Found in Retail Stores / 41Common Errors and Issues Found in Manufacturers / 46Staying Compliant / 50

DisclaimerBy using this material, you agree that Orchid Advisors shall not be liable for any damages whatsoever. Orchid Advisors makes no representation as to the completeness nor legal interpretation of the content in its licensed materials. This should be used as an operational guide to enhance awareness and do not replace your responsibility for reading and complying with the law.

3

com·pli·ance (kəmˈplīəns) n. 1. the state or fact of according with or meeting rules or standards.

It seems natural to begin any compliance guide with a definition of terms, a discussion of applicable laws, rules and regulations, then move on to the meat of the matter. Un-derstanding the regulations is the first step to navigating them effectively. However in reality, compliance does not exist in a vacuum. It is not something that can be willed into being by ordering your employees, customers, or vendors to “be compliant”. Un-derstanding the laws simply isn’t enough. The laws will be discussed briefly, but stat-utory interpretation is lengthy and can be quite dull. More importantly, the regulations define the requirements for compliance, but they do little to advise how to be com-pliant. It’s one thing to say “record all A&D transactions in your book of acquisitions and dispositions in a timely manner” or “all serial numbers must be engraved on the receiver to a depth of .003” and be a minimum of 1/16” tall.” It is completely another to evaluate how those processes will actually take place; what controls exist to ensure that they happen each and every time, and how you will evaluate and ensure that your facility is following the expectations of the law and regulation.

This guide is not a legal treatise. It does not evaluate every nuance, loophole, contra-diction or bright-line requirement of the regulations facing the holder of a federal fire-arms license. Nor is it a step-by-step guide on how to run a legally-compliant business. It is a discussion of the requirements of the law, along with some tested and effective potential solutions for ensuring the compliance health of your operation. Compliance is an element of business that is interwoven into all operations; it is not a standalone re-sponsibility of a singular officer or department. Operational compliance, as a concept, is also extremely fluid – the execution (e.g., “the how”) varies as much as your business and your infrastructure does. Keep that in mind as you are considering the following topics, and in all cases, ask yourself: “how can I adopt some of these strategies in my own business.”

4

A Word on Operational ComplianceRecordkeeping accuracy and inventory accountability are the primary indicia of a licens-ee’s good compliance health, although these are not achieved simply by “keeping good records” and “accounting for firearms”. While a licensee could directly audit its A&D records and on-hand inventory daily, such a process would be prohibitively expensive, in terms of costs, resources and time. As volume scales up, a licensee’s embedded processes and systems will be the primary driver of compliance or non-compliance. In fact, many of the actions that drive compliance are decidedly not “compliance functions” at all, but rather operational functions. Control over serial number appli-cation, accuracy of shipping records that flow to your A&D book, change management, limitations on access to electronic regulated records or adherence to security protocols are behaviors that, in and of themselves, do not appear to be related in any direct way to the GCA, NFA, AECA or EAR/ITAR. However, the goal of operational compliance at all levels is to develop processes and systems that will ensure an outcome wholly consistent with the requirements of the applicable regulations. The regulations are your blueprint for success; they are not the directions on how to build a compliant culture. True operational compliance is driven not by the knowledge of your compliance or legal departments, but rather the process and system integrity of transactions that affect a regulated transaction.

The Gun Control Act of 1968The Gun Control Act is the mother of modern firearms regu-lation. It is the primary legislative authority of the ATF, and examining the GCA will provide you with a significant under-standing of the rules you’re required to follow. Most, if not all of the GCA stipulations can be traced back to one common denominator: they all attempt to increase the regulation of the firearms industry by applying the Federal Government’s power over the production, transfer, and operation of firearms. While some may argue the Government’s role in the industry, that is not our intent here. Good, bad or ugly, we just want you to be aware of the rules of the road.

This means that many of the restrictions fall upon the manufacturers, wholesalers, importers, and dealers of firearms, as these are the channels through which firearms are distributed. By increasing its ability to monitor firearms distribution, the Govern-ment sought to restrict inappropriate access. This mainly applies to the FFL and tracing requirements set out by the GCA. The prohibited person clause seeks to prevent inap-propriate individuals from possessing firearms. As a general starting point, the GCA

Creating the FFL System

One of the cornerstones of modern firearms regulation is the Federal Firearms Licensing system, or FFL. This was founded in the GCA. The creation of the FFL system worked off of a fairly simple idea: that a process must be established to manage who has the ability to partake in the firearms industry, and that the process should allow those indi-viduals to have their activities monitored. The result was the Federal Firearms Licensing system.

President Lyndon B. Johnson signs the Gun Control Act of 1968 into law.

5

The system itself is pretty straightforward. If all you want to do is partake in the firearms industry as a consumer (e.g., purchase a gun) it is less applicable to you as separate and distinct rules govern the transfer of firearms to unlicensed parties. The FFL system concerns individuals who wish to conduct business in the firearms industry. Generally speaking, this includes those individuals who want to make, import, or deal in firearms as a profession.

There are nine types of FFLs but suffice to say that each license provides the holder with the ability to participate in a particular component of the firearms industry. Some examples include a license to deal firearms as a pawnbroker, a license to manufacture ammunition, and a license to import firearms and ammunition. It is illegal for non-li-cense holders to participate in the commercial activities granted to FFL licensees; non-licensees can participate in these activities as long as they are not intended for commerce.

However, with the privileges of an FFL comes the responsibility of federal regulations. The GCA implemented some key requirements that apply to FFL holders (partial list):

1. Marking Requirements2. “Sporting Purpose” Clause3. Prohibited Persons Clause4. Firearms Accountability5. Record-Keeping6. Conduct of Business

Marking Requirements

Whenever you produce a regulated firearm (which includes frames or receivers), certain markings must be engraved, cast, or stamped upon the firearm. Likewise, importers must verify that these markings are present, and supplement any absent information. The ATF requires certain marking requirements to be present upon a firearm when manufactured or imported into the United States before it is released into commercial circulation. Here is the information that must be conspicuously placed by engraving, casting, or stamping (impressing) on the firearm frame or receiver (18 U.S.C. § 923(i) and 27 CFR § 478.92, 26 U.S.C. § 5842 and 27 CFR §479.102).

If you’re an importer, it’s still your responsibility to make sure that your imported fire-arms present all regulated information in the required manner. If they do not, it is your responsibility to furnish any missing information within 15 days of release from Customs and Border Protection. Your additions must adhere to all aforementioned standards and pertinent record-keeping requirements.

The intentional defacement, obliteration or removal of a serial number on a firearm is a felony charge, and bears with it all the implications of such a charge.

6

Syst

ems

Busi

ness

Pro

cess

esCo

mpl

ianc

e Pr

oces

ses

Having a “Sporting Purpose” (Importing Restrictions)Effectively, the GCA reduces one’s ability to import firearms in almost all situations. The only firearms or ammunition admitted for importation must be either (18 U.S.C. § 925 (e)):

For the purpose of scientific testing or research or for competition training (under the provisions of Title 10, Chapter 401);

• Unserviceable firearms (An unserviceable firearm is defined as one which is inca-pable of discharging a shot by means of an explosive and which is incapable of being readily restored to a firing condition (26 U.S.C. 5845(h) and 5852, 27 CFR 479.11and 479.91));

• Of a type generally recognized as particularly suitable for or readily adaptable to “sporting purposes”;

• Firearms or ammunition that were previously taken out of the United States by the person who is bringing in the firearms or ammunition; or,

• Non-sporting firearms qualifying as “curios or relics.”

Of these exemptions, the principal one evoked is the “sporting purposes” clause, which is why the import restrictions of the GCA are often referred to as the “sporting purpose” restrictions. The ATF generally analyzes the physical features of the firearm to ascer-tain whether they believe it meets the necessary criteria to be considered a “sporting” firearm. Determinations are made by individual case, using various physical traits like appearance, design, and configuration to assess “sporting purpose” qualification. For example, its design should be primarily to support commercial, consumer use, and not be specifically configured for military applications (though many collectible ex-military firearms are imported as “curios and relics,” which is another exemption with its own set of rules.

Handguns must also meet one the aforementioned exemptions. In addition, and unlike

7

conventional firearms, an ATF Form 5530.5 is required to evaluate a handgun’s poten-tial qualification as a “sporting purpose” firearm. Handguns undergoing this evaluation will be assigned a certain point value (rendering a classification status by ATF) before they will be approved for importation. Characteristics like weight, caliber, and dimen-sions will be used to assess this number.

Federally-Prohibited Persons

One of the stipulations of the GCA is the introduction of a prohibited persons clause. This, in essence, is a list of people who can’t purchase, operate, transfer, or possess a firearm. The information below has been taken directly from ATF Form 4473(Firearms Transaction Form). The ATF prohibits the shipment, possession, transfer, or transport of firearms by an individual who is/has been:

1. Under indictment or information in any court for a crime punishable by impris-onment for a term exceeding one year;

2. Convicted of a crime punishable by imprisonment for a term exceeding one year;

3. A fugitive from justice;4. An unlawful user of, or addicted to, any controlled substance;5. Adjudicated as a mental defective or has been committed to any

mental institution;6. An illegal alien;7. Discharged from the military under dishonorable conditions;8. Renounced his or her United States citizenship;9. Subject to a court order restraining the person from harassing, stalking, or

threatening an intimate partner or child of the intimate partner; or,10. Convicted of a misdemeanor crime of domestic violence.

Just like most other components of federal regulation, some of these are subject to circumstance. For instance, convicted criminals who have had their records expunged or aliens who receive special permission from the Attorney General, can be exempt.

ATF Compliance Inspection

ATF Inspections – Concept and Background

ATF implements its FFL Inspection Program through its Industry Operations, a Regulatory Enforcement section under the Office of Field Operations, which also houses the Criminal Enforcement section. Industry Operations Investigators (IOI’s) conduct compliance inspections to examine whether an FFL is in compliance with federal firearms laws and to verify that the FFL is accurately maintaining the required forms, an A&D Book, and other records. As a significant number of the applicable laws and regulations pertaining to a licensed firearms dealer or manufacturer deal with recordkeeping, a licensee’s re-cords (in particular the Book of Acquisitions and Dispositions) is often the primary focus

8

during a compliance inspection, and serves as the basis for both the determination of a licensee’s state of compliance and risk for future violations. Once a compliance inspec-tion is completed, an FFL can be deemed as either is “in compliance,” “not in compli-ance,” or “at risk.” “In compliance” means that an FFL has no violations or minimal violations that are outlined in a Report of Violations and do not require administrative action. “Not in compliance” means that an FFL has violations that require an adminis-trative action. “At risk” means an FFL may face administrative action if it continues to be non-compliant. In all cases, subsequent violations of the same regulatory provision may be deemed “willful”, and any penalties attached to the violation of that regulation may be enhanced or accelerated.

Generally speaking inspections tend to follow3- or 5-year cycle depending on whether the licensee is situated or not situated in a geographical region where an above-aver-age number of firearms implicated in crimes originate from that particular geographic area. A licensee has little control over whether they are located in a “source” or “non-source” state, as this determination is driven primarily by statistical analysis of National Tracing Center inquiries. Compliance inspections also can be initiated based on: (1) a set of criteria that identifies the FFL as high risk or a priority, such as results of prior inspections; or (2) a special request from ATF headquarters units or the ATF Criminal Enforcement section. If a compliance inspection reveals violations that can be correct-ed with education and improved record keeping, Industry Operations schedules a recall inspection. Recall inspections are follow-up compliance inspections that by federal regulation may be conducted no earlier than 1 year after the initiation of the deficient compliance inspection, unless an FFL agrees to an earlier inspection. Investigators can either conduct a limited scope recall inspection with a focus on the areas cited in the previous compliance inspection or expand the inspection to a full scope recall inspec-tion to determine if the FFL improved its compliance or remains non-compliant with federal firearms laws.

Although inspections apply to the broader pool of licensees, compliance inspections can often focus on high-risk FFLs, utilizing tracing data and other intelligence to determine which FFLs were at highest risk for violating federal firearms laws. These licensees are inspected separate and apart from the cyclical inspections. High-risk FFLs can be desig-nated based upon a series of risk indicators, such as:

1. High number of guns that were used in crimes being traced to the licensee;2. Multiple sales by an FFL to a single individual;3. Theft or loss of firearms;4. NICS denial ratios (ratio of NICS checks performed vs. number of returns re-

ceived indicating the individual is prohibited from possessing firearms);5. Location in a high-crime or border area; and 6. Tips and other intelligence from state and local law enforcement.

The annual operating plans for Industry Operations, and other directives issued by ATF headquarters to the field divisions, describe the importance of prioritizing high-risk inspections. As part of its efforts to focus compliance inspections on high-risk FFLs, in 2004, ATF developed the Firearms Disposition Emphasis Inspection Program. The pro-gram focuses compliance inspections on specific areas of FFL business operations that may lead to the discovery of illegal firearms diversion and trafficking. For example, to determine if FFLs are violating federal firearms laws, ATF may direct Industry Operations

9

investigators to conduct inspections of FFLs in a particular area that sell a high number of weapons known to be favored by criminals.

A&D Accuracy is the Cornerstone of Compliance.

Inspection Priorities Can Define Your Success and Risk Factors

A licensee’s Book of Acquisitions and Dispositions can be viewed as the foundation for your annual compliance inspection. Goals with respect to annual compliance inspec-tions are discussed above, but include:

1. Ensuring the licensee is maintaining accurate required forms (e.g., Form 4473; Form 3; Form 4; Form 5; Form 9; Theft, Loss or Missing Inventory Re-ports; Reports of Multiple Sale, etc.);

2. Ensuring the licensee is maintaining an accurate Book of Acquisitions and Dispositions;

3. Maintaining the traceability of certain firearms, including where they were acquired from and to whom they were disposed;

4. Disposition reports (including reports of multiple sale) which may lead to the discovery of illegal firearms diversion and trafficking.

Understand An Inspector’s Goals to Define Your Success and Risks

One of the best ways to ensure the demonstrable accuracy of a licensee’s records during an annual compliance inspection than a complete bi-directional match between on-hand inventory and the A&D Book, and supporting documentation (when required) for disposed firearms.

As you can see, the top focuses during the inspection process all center on informa-tion that is initially contained in three major sources: (a) Inventory on-hand; (b) A&D Records; and (c) supporting documentation and required forms. For Title I firearms (and even to a degree Title II firearms), an investigator will need a starting point from which to conduct their inspection. This starting point is the licensee’s A&D Book. The accuracy of these records can make or break the success of an inspection with respect to verification of inventory and supporting required forms, as this information will be validated against information contained in the A&D Book.

A&D accuracy is so critical to the inspection process that an important first step of most inspections will be for the assigned IOI to conduct a bi-directional inventory of the licensee’s books and physical inventory. Although inspections may be conducted with slight variation, in practice, the process is as follows:

1. All physical firearms on the licensed premises and any off-site storage are compared to the A&D Book to ensure that all physical inventory is acquired; and

2. All open entries in the A&D Book are compared to physical inventory to verify there is a physical firearm for each open entry to ensure that no inventory is lost, stolen or unaccounted for.

10

Even after the inventory portion of the annual compliance inspection is complete, the A&D Book will still play a central role in the remainder of the inspection, as closed entries (dispositions) will be reviewed against other required forms (Form 4473, Reports of Multiple Sale, Form 3/4/5/9 for NFA dispositions or Missing Inventory/Theft Loss reports).

A&D Book Management

What is the A&D Book At its core, the Book of Acquisition and Dispositions (or A&D Book, Bound Book, or simply “the Book”) is so named because, in its most basic form, consists of sheets of paper bound together to prevent tampering or removing or inserting record entries and contains records in accordance with ATF regulations. Historically, these records were kept on paper, but many business operations (both large and small) utilize an electronic version for purposes of efficiency. Additionally, electronic recordkeeping software often contains logic that includes built-in data validation features.

The purpose of the Book of Acquisition and Disposition is fairly simple; it is a register that tracks the movement of a firearm through a licensed facility by the incoming and outgoing entries in the book. If, for any reason, a law enforcement agency needs to trace a firearm, they can do so by following the trail created by the transfers recorded in your Book. The A&D Book is the cornerstone of the ATF’s tracing of firearms, and ensur-ing it is kept in a timely and accurate manner is a paramount concern to the industry’s regulators.

Every time a firm acquires a firearm, the FFL records acquisitions in its A&D Book, citing important and required information, such as the serial number and a general description of the firearm, date of the transaction and where it was acquired from. Likewise, every time a firearm is disposed of, similar information must be recorded.

11

The federal requirements for the information captured and the appropriate formats are discussed in greater detail, below. In all cases, bear in mind that the A&D Book is a critical piece of recordkeeping because of the regulatory requirements and its functional necessity during an annual compliance inspection. It is required by the regulations, and will serve as the starting point for your compliance inspections. It contains information you are lawfully required to provide on inquiry by the ATF with respect to trace requests. The layout and fields contained in the Book of Acquisitions are regulated, and it is required that you capture all mandatory data, as well as highly recommend that you not use the A&D Book to capture additional, non-regulated information. It is not a notebook or journal – while those can be useful business tools, they should be maintained sepa-rate and apart from the A&D Record.

Despite its importance from a regulatory perspective, using the A&D book is fairly straightforward, and with one exception, most of the information required to be provid-ed is on the firearm you are acquiring or disposing. With the exception of “type” (e.g., rifle, shotgun, pistol, revolver, etc.), all the information required for each firearm is marked on the physical firearm and should be verified each and every time information will populate any field in the A&D record.

Acquisition vs. Disposition vs. Neither

In order to keep accurate records, the licensee must first understand what information must be captured, and what types of transactions must be recorded in the A&D Record. While the below examples do not take the place of the regulations, they should direc-tionally guide you when reading pertinent laws. Note that the timing of these entries should be made in accordance with the specific rules of ATF Ruling 2013-5.

Acquisitions

An acquisition occurs when a licensee takes possession of (or finds itself in possession of) a firearm which it did not have before, or discovers that it is in possession of a fire-arm for which no prior regulatory records exist. Examples of when to acquire a firearm in your A&D Book include:

• At the point of firearm serialization (i.e., when it is created and marked in accor-dance with regulatory timing parameters);

• Receipt of firearm from a licensee or non-licensee when it has been formally trans-ferred to you (see regulated definition of a “transfer”);

• A to-be-repaired firearm that stays overnight in your facility;• A firearm delivered for sale or consignment that stays overnight in your facility; • When you “find” a firearm that was previously reported as scrapped (i.e., de-

stroyed), stolen or lost.

Dispositions

A disposition is the opposite of an acquisition. A disposition occurs when a firearm leaves the possession of a licensee, or discovers that it is not in possession of a firearm for which no a regulatory record exists. Examples of when to dispose a firearm in your A&D Book include:

12

• When you are unable to locate a firearm and have formally reported it as a Theft or Loss to the ATF;

• Firearm destruction (or scrap);• Normal transfers to another licensee or non-licensee.

Special Circumstances – Simultaneous Acquisitions & Dispositions

As you may know by now, firearms come in many forms. For example, the serialized component of a rifle is the receiver. When a receiver is assembled into a rifle, or disas-sembled back to a receiver, it is technically changing form. Such changes in form have different identities (as defined by the regulations), and require the creation of a new record to reflect the new configuration of the firearm. Therefore, changes in form will result in a self-disposition (e.g., recording a disposition to the licensee of a firearm in its former configuration, despite the firearm not leaving the licensed premises) and self-ac-quisition (e.g., recording an acquisition by the licensee of a firearm in its new configura-tion which is already on the licensed premises) that is recorded in the Book.

Neither Acquisitions nor Dispositions

Certain transactions can appear to meet the above definitions of “Acquisition” or “Dis-position”, but are in fact, neither. The following transactions are not recorded in the A&D Book as acquisitions or dispositions:

• Temporary assignments to employees for bona fide business reasons as defined in ATF Ruling 2010-1 (and firearms returned by the employee which were previously temporarily assigned);

• Movements to an offsite warehouse that has legally been approved as part of an FFL per the regulations;

• Movements inside of a facility to change its storage location;• Changing the value of a manufactured or purchased part;• Change in part number, Stock Keeping Unit (SKU) or material number (unless the

ATF characteristics also change).

Note that some of these transactions would appear to warrant a “disposition “, however, if you understand how the ATF looks at each of these transactions from a traceability perspective, it becomes more clear why each is not a disposition.

• Temporary assignments to employees for a bona-fide business purposes are viewed by the ATF as still being in the custody and control of the licensee, and therefore should not be disposed (the firearm can still be traced to the licensee);

• Offsite storage locations are viewed by the ATF to be an extension of the licensed premises and are therefore still in the custody and control of the licensee;

• Internal movements inside the licensed premises are still retained by the licensee• Changes in financial value, part number, material number or SKU do not change

the regulated physical characteristics of a firearm and they remain in possession of the licensee.

13

Other Special Circumstances – Timing and Circumstances Determine Whether an Acquisition or Disposition

• Escorted Company Firearms: Firearms leaving or entering the premises of an FFL while under the escort of an employee from that FFL for bona fide business pur-poses (ATF Ruling 2010-1) are considered “Temporary Assignments” and do not constitute an acquisition or disposition. This might happen, for instance, if a third party sends one of their employees to escort (fully under their control) a firearm while it is being camouflage coated at another business’ facility. However, if the employee doesn’t maintain possession (i.e., control) of the firearm, or if it stays overnight out of their control, it will become an acquisition of that other facility and a disposition in yours.

• Personal Firearms: If an employee brought his or her firearm to work for a few hours, and, it was physically segregated (e.g., remaining under their control and ideally marked as such), an acquisition or disposition would not be required. How-ever, if the employee fails to retain control, and comingles it with other company assets for an extended period of time, the ATF would argue that it was acquired (thus requiring an A&D acquisition entry) and require a NICS background check, 4473, and a formal disposition record upon the return of that asset to the employee.

Clear as mud? Very good. Let’s take a look at how the Bound Book is laid out. Layout of the Bound Book

The bound book itself is a multi-page book comprised of many formatted, lined pages. Each firearm has one or many horizontal rows in your bound book (or electronic coun-terpart). The information in each row is divided into three sections – information about the firearm, information about the party you acquired it from, and information about the party you disposed it to.

The following image is a sample manufacturing FFL bound book. The layout and re-quirements vary by FFL type as provided in Sections 478 and 479 of the regulations.

14

Sample Manufacturing A&D Book(Note that the regulated form varies depending on the type of FFL held by the licensee; please consult the regulations for the regulatory requirements)

The first set of information recorded in the bound book will be the regulated informa-tion for the firearm itself (as defined in 27 C.F.R. 478.92 or 27 C.F.R. 479.102), and includes the following information:

• Manufacturer/Importer: Every firearm should be engraved with a manufacturer’s name per the regulations. In the case of imports, imported firearms should also be engraved with the importer’s name, again per the regulations. Both must be recorded in the Bound Book.

• Country of Manufacture: This information should be engraved on every imported firearm (27 CFR 478.92(a)(1)(ii)(E)). Country of manufacture is only required to be entered in an importer’s A&D records. If you are not the importer of a firearm, country of manufacturer is not recorded (but the foreign manufacturer and import-er still must be recorded).

• Model: The model will be engraved on the firearm. If the model is unknown, (for instance a frame that has not yet been engraved), you may put “UNKNOWN.”

• Serial Number: Every firearm must bear a unique serial number. The firearm’s seri-al number will be engraved conspicuously, per the regulations. Bear in mind that any process that permits entry of a serial number from any source other than the metal of the firearm introduces risk. In the event that pre-validated scan tags or labels are to be used, they should not contain a human readable serial number to avoid the “ease” of using an alternate means of serial verification, other than the actual metal of the firearm. In all cases, the metal is the truth. If you or a vendor mis-tags a firearm and you record it incorrectly, it is your error.

Description of a Firearm Acquisition Disposition

Manufacturer and/or

Model Serial Number

Type Caliber Date Name and Address or License No.

Date Name Address or Licensee. No. if Licensee, or Form 4473 SN if Form 4473 Filed

An example of a Manufacturing or Dealer FFL A&D bound book page. (Source: Orchid Advisors)

15

• Type: The “type” of firearm should reflect the type at the point of transaction to enter the acquisition or disposition into the book, not future or past configurations. This would include terms such as pistol, revolver, rifle, shotgun, frame, receiver, etc. Note: do not confuse Type with the firearm’s action such as bolt, lever, semi, etc., as these are not required to be entered.

• Caliber or Gauge: The caliber or gauge is engraved on the firearm. If unknown, use the word “UNKNOWN.”

After the basic information is recorded, you must input the information surrounding the acquisition transaction by which you are receiving the firearm. This will include the following information:

• Acquired Date: This is the date on which the firearm was physically acquired or manufactured. In the case of imports, it is the date released from U.S. Customs, not the date of physical receipt.

• Acquired From Name and FFL: This is the name and FFL number (if applicable) of the person or entity that transferred the firearm to you (the full 15-digit FFL num-ber should be entered). If a firearm is received from an FFL holder, the Acquired Name should match the name listed on their FFL.

• Acquired From Address: This is the physical address from which the firearm came.

Not surprisingly, the disposition record mirrors the logic of the acquisition record and requires the following information:

• Disposed Date: This is the date on which the firearm was disposed.

• Disposed to Name and FFL: This is the name and FFL number (if applicable) (the full 15-digit number should be entered) of the person or entity to whom you transferred the firearm. If the recipient is not an FFL holder or if they are not an exempt party (e.g., U.S. Government) per the regulations, a NICS/4473 transac-tion must occur. It is helpful to enter the Form 4473 transaction serial number (from the Form 4473) to assist in matching a disposition record to a Form 4473. If your Form 4473’s are not pre-serialized, it is acceptable to develop an in-house 4473 serialization standard, but be consistent. Also, the Form 4473 serial num-ber does not replace the disposed-to address.

• Disposed To Address: This is the physical address to which the firearm was trans-ferred. When entering Disposed to Name and Address for Sold To / Bill To transac-tions, be careful to accurately report the proper information.

International and Domestic TransactionsAs it pertains to the A&D Book, there are some, albeit not too many, differences be-tween domestic transactions and international transactions. The following is a summary of those differences, but ATF regulations cited in 27 C.F.R. 478 et seq. and 27 C.F.R. 479 et seq. should be fully understood. Additionally, international transactions (partic-ularly dispositions to non-United States entities) may implicate additional laws

16

and regulations, including the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), the Arms Export Control Act (AECA). Although not discussed in this guide, and although these regulations to not implicate a licensee’s obligations to maintain acquisition and disposition records, it is critical for an importer or exporter to fully understand these additional requirements, laws and regulations.

• Imported firearms are marked with an “Importer” of record, which is also to be re-corded, along-side the Manufacturer of record (27 CFR § 478.92 and 479.102);

• Whereas most transfers to license and unlicensed parties result in an acquisition or disposition denoted with the physical date of exchange, import acquisitions must use the date of release from U.S. Customs into the United States (see 27 CFR § 478.112(d));

• Records of Acquisition and Disposition relating to international entities will not in-clude a Federal Firearms License (FFL) number. Foreign entities are not governed by U.S. agencies and do not hold FFLs. Therefore, that field should be left blank on the A&D Book (see 27 CFR § 478.47).

Timing of Acquisition and Disposition Entry

In general, it is a best practice to record your firearms as soon as acquired or disposed of. However, this is not always possible and/or practical. There are three basic time restrictions, and these are critically important items to communicate throughout your organization (see 27 CFR §§ 478.125(e) and 478.125(g)):

• Manufacturers have 7 days to record acquisitions and dispositions;• Any FFL involved in importing has 15 days to record acquisitions pertaining to

the import itself; Importers holding an Import FFL have 7 days to record all other (domestic) acquisitions and dispositions;

Description of a Firearm Acquisition Disposition

Manufacturer and/or

Model Serial Number

Type Caliber Date Name and Address or License No.

Date Name Address or Licensee. No. if Licensee, or Form 4473 SN if Form 4473 Filed

Acme Mfg. A152 1234 Revolver .38 12/1/15 ABC Wholesaler, 123 Main Street, Anytown, State

A Sample Acquisition Entry in the A&D Transaction Record. (Source: Orchid Advisors)

Sample Manufacturing A&D Book(Note that the regulated form varies depending on the type of FFL held by the licensee; please consult the regulations for the regulatory requirements)

17

• Retail (or dealer) acquisitions upon first receipt must be recorded no later than the close of the next business day. If commercial records of firearms received con-tain all acquisition information required by the bound book, the dealer may – for a period not exceeding 7 days – delay making the required acquisition entry into their bound book. Dealers have 7 days to record their dispositions. Again, with the exception of original import acquisitions, every other acquisition and disposition must reflect the date of the actual event.

In all cases, the 7 or 15-day delays are only windows to permit the licensee time to record the information in your A&D Book. In all cases, the multi-day allowance is for ad-ministrative processing only. The actual date used should reflect the date of the physi-cal event, not necessarily the day that you got around to making the entry. Note that for imported firearms, the “date of the physical event” is the date the firearms were re-leased by U.S. Customs and Border Protection, not the date they arrived at your facility.

Changes to the A&D Books and NotesYour records are required to be kept accurate, and up-to-date. However, sometimes new information comes to light, changing the nature of your records. It is recommended that corrections be kept to a minimum. If you find yourself consistently correcting your existing records (in accordance with the regulations), you should consider implementing stronger record-keeping controls.

If you must make a correction to your electronic records, the rules are clearly stated in ATF Ruling 2013-5. The ruling states, verbatim:

The system must retain any correction of errors as an entirely new entry, without deleting or modifying the original entry (e.g., macro created to track changes). Alternatively, the system may allow for entries in a “notes” column to

18

explain any correction and/or track changes i.e., what was changed, who made the change, why the change was needed). ATF suggests that the record-keeping system be capable of blocking fields from correction (e.g., protect workbook function).

If you need to make corrections to your paper bound book, remember to make a sin-gle line through the error (no eraser or white-out). Then initial and date the change made. In cases where electronic records are maintained, a permissible ATF Rul. 2013-5 correction requires that a note be made on the record, and an audit trail pre-serves the original data. If your system does not have this capability, it is an option to make a correction either to a pen-and-paper record or an electronic record by making a self-disposition of the incorrect record, immediately followed by a self-acquisition of the corrected record. In that case, the incorrect data will be retained as required under ATF Rul. 2013-5.

In the firearms industry, core regulatory requirements for record-keeping are contained in Title 27, Code of Federal Regulations (CFR §§ 478.121, 478.122(a), 478.123(a), 478.125(e), 478.125(f), 27 CFR § 479.131, various ATF Rulings, amongst other laws and regulations.). On a very high-level, these regulations delineate the responsibilities of businesses operating within the firearms industry to maintain accurate, current, and organized records of selected firearm transaction activity (e.g., Acquisitions and Dispo-sitions). In the wake of increased movement towards electronic record-keeping, the ATF released Ruling 2008-2 and later Ruling 2013-5, (superseding 2008-2)1. A few core features of 2013-5 include:

• It clarifies the necessary methods of correcting records.• It defines that your electronic records system must retain any correction of errors

as an entirely new entry, while keeping an unmodified original entry. Alternatively, it allows for (and in some cases requires) entries in the “notes” section of your software system to explain corrections. This should include things like what was changed, by whom, when, and why the change was necessary.

• It infers permission to use Microsoft Excel (or similar spreadsheet/database ori-ented tools), but Excel is not a recommended primary solution unless it is well controlled.

• It states that the system cannot rely upon invoices or other paper/manual systems to provide any of the required information.

• It states that the system must back-up the firearms acquisition and disposition records on a daily basis to protect the data from accidental deletion or system failure.

• It states that the system must allow queries by serial number, acquisition date, name of the manufacturer or importer, name of the purchaser, and address of purchaser or other transferee.

• It states that a business’ electronic records must be stored on a server owned and operated solely by the person who holds the respective Federal Firearms License. In addition, it poses that this server must be located within the United States.

• It states that a licensee must be capable of printing (or downloading) his or her records within 24 hours of request from the ATF.

• Additional requirements are also stated therein. Please refer to the ruling for full details.

This said, there is an important area in 2013-5 to note about servers. While we live

1 The full 2013-5 Ruling may be found here: http://www.atf.gov/sites/default/files/assets/Library/Rulings/Firearms/atf_ruling_2013-5_re-quirements_to_keep_firearms_acquisition_and_disposition_records_electronically.pdf

19

in the “cloud” age today, where businesses like Dropbox, Google Drive, and Microsoft OneDrive thrive through the use of cloud-based storage, it can sometimes be unclear whether a rented or shared server in the cloud is “owned and operated by the licensee.” This is important to note for any company considering electronic A&D record-keeping. Any business considering implementing an electronic A&D system that utilizes the cloud should be aware of the requirements stated in 2013-5.

A Final Note about Notes

Use care when making a “note” entry when performing an A&D Record correction under ATF Rul. 2013-5. Your notes field should capture the information required under the ruling, but be careful not to make statements which would otherwise be deemed to be legal admissions in a non-privileged document, such as your A&D Record.

Accurately Capturing Serial Numbers and Other Data

Dual-Blind Entry and Double Verification

The following concept was given its own section not because it is directly related to compliance, but rather because it is directly related to operationalizing your compli-ance. The concept of double-blind data entry can be deployed in many different com-pliance-related functions, such as shipping, receiving, packing, A&D data entry, scrap and destruction and records correction. Its value to driving down errors has been de-monstrably effective in numerous different scenarios. As you are considering your legal and regulatory obligations in each area (and hopefully how to optimize your compliance with respect to each), consider the use of Dual-Blind Entry or double verification for each.

Dual Blind Entry technology operates upon a simple idea: it’s unlikely you’ll make the exact same mistake twice. Consider, for a moment, setting up a password on any mod-ern computer system. You must type in your prospective password twice. Both times, the information is hidden from you (the information is “blind” because the characters appear as dots). By requiring the two passwords to match, the only potential for error is if a mistake is typed the exact same way twice.

This same strategy can be repurposed to maintain your bound book. Typically, informa-tion is entered either by hand key, 1D/2D barcode scans, or Optical Character Recog-nition (OCR). In any form, single instance entry likely increases your risk of error. So, operationalizing Dual Blind Entry technology is simply a matter of duplicating the data entry procedure. In other words, in addition to your conventional means of data keying, you should consider: (a) a second, independent entry by another human; or (b) a sec-ond, independent method that includes scanning or OCR.Let’s look at this in practice. Let’s say that whenever you pack, receive or ship a pallet of goods, the serial information is hand key-recorded by one of your employees. This is a common practice, but is not recommended by itself. After all, a single error made by this lone individual may bring potentially serious consequences.

However, add an additional step − say, you have a second employee to hand key the

20

information separately again − and the procedure becomes drastically and statistical-ly more reliable. If the two employees’ hand keyed information does not match, the discrepancy is inspected before the transaction is completed. This is a relatively simple example − most scaled operations would likely implement OCR or bar code scanning technology over hand keying − but it certainly makes the concept easy to understand! Doubling the entry points for data entry and making both parties blind and independent will make your record-keeping process much more than twice as reliable.

Obviously, this carries the concern of adding labor cost and time to the operational pro-cess. But searching for serial numbers, correcting wrong-gun in box situations, reconcil-ing records and responding to regulatory compliance violations comes with a cost too. Evaluate your options and design a well-balanced process that maintains operating mar-gins while significantly decreasing your operating risk. The ultimate solution will vary by company, business model, technology capability, budget, staffing, and other factors; but it all starts with solid data integrity controls like Dual Blind Entry.

Shipping and Receiving: Acquisitions and DispositionsA brief discussion on shipping and receiving functions is warranted, not because the areas present particularly unique compliance risks, but because errors in acquiring and disposing firearms are among the most commonly-cited violations facing both manu-facturer licensees and retail licensees. The solutions for addressing these issues are addressed elsewhere in this document, but all relate to accurate treatment of the A&D book, maintaining control over your processes and systems (and the embedded data that drive those systems). Nevertheless, there are specific considerations to address.

Timeliness of Entry

The greatest compliance risk for acquiring or disposing firearms is that transactions are not recorded (either acquisitions or dispositions) by the end of the next business day

21

(for retailers) or within seven (7) days (for manufacturers). The requirements for proper A&D recordkeeping are discussed in detail in previous sections. Firearms which are not acquired or disposed in the allowable period are a violation of the regulations in and of themselves, and the longer time goes by before the transaction is properly recorded, the greater the chance of a compounding error – the existence of off-book (received, not acquired) firearms; the appearance of lost firearms driven by inaccurate A&D record-keeping (shipped, but not disposed and still showing acquired). As time goes by, many of these losses become irreconcilable, and therefore uncorrectable.

Segregate Discrete Operations

Weak material flow and insufficient segregation will adversely impact both shipping and receiving functions, which, in turn, will adversely impact the accuracy of the data flowing to your A&D and other records. For example, staging all shipments in a singular area, including ones “ready to ship” with others waiting approval makes it more likely the wrong pallet or package will be sent outbound. To address these risks, evaluate segregating both shipping and receiving duties, as well as further segregating responsi-bilities within each area, such as picking and packing, or receiving and error resolution for received foods. Shipments or receipts should be separated by carrier and date of arrival and/or expected pickup.

All Other Best Practices Stand

Training, processes and systems that are effective in other areas can and, if possible, deployed to your shipping and receiving areas, as well. While each are discussed in greater detail throughout this guide, things like dual-blind data entry, double verifica-tion, and training employees to validate all information off the gun, never the box will provide compliance benefits.

SKU and Material Number ManagementIn all cases, the ideal (and required) regulatory end state is for your A&D Book to match the characteristics and markings on the physical firearm. We discussed in the A&D Re-cords second the importance of verifying all required information (make, model, caliber) off the metal of the firearm to ensure A&D accuracy; that the markings on the gun in front of you is the ultimate truth. However, if any sort of automation is used, if there is not alignment between the accuracy of the data used to populate fields and the physi-cal firearm, you will find yourself in a situation where the packaging, A&D Record and product do not align. This may show itself as incorrect manufacturer, model, caliber or type (and ultimately become a wrong-gun-in-box scenario), or cause incorrect disposi-tion or acquisition information to populate the A&D Record.

Unfortunately, A&D errors are not the extent of the issues that can be seen. Packaged NFA firearms may be transferred or disposed without completing the requisite ATF Na-tional Firearms Act forms or approvals, or you may inadvertently dispose a firearm with particular physical characteristics to a state where those characteristics are prohibited under state law – often with criminal implications in addition to regulatory implications. Finally, although not regulatory in nature, these inaccuracies can give rise to financial variances, which could be detrimental to the fiscal health of the licensee.

22

Ideally, your material management systems should rely on pulling master data from a centralized location to fill SKU descriptions, define material numbers and populate fields in the A&D Record. Reducing these risks should be addressed with preventative controls, including:

• Requirements to maintain one piece flow during build and assembly; • Eliminate Reprinted Labels or Packaging, or significantly restrict access to reprint-

ed materials; • Limit inventory access and system access to decrease the likelihood of changes to

master data or product data files; • The firearm contains the ultimate truth – all firearms transactions should be off

the firearm, never the box; • Prohibit entry of SKU or part number of cheat sheets. Regulated data should flow

from a singular controlled source, never from notes maintained in operational areas.

Data Setup and Control

Preserving the accuracy and integrity of master data or product data files is critical to maintaining control over SKU and material number setup. While having a singular point of contact with the permissions and abilities to ensure controlled and restricted changes to data accomplishes this outcome to a degree, it can present other liabilities – for example, if that person is out, on vacation, or suddenly resigns, you will find yourself overly constrained by the policies. Additionally, having one individual with access only ensures that only one individual has access, not that the information is configured cor-rectly. Instead, consider the following alternate options:

• Product data should be set up, reviewed and/or approved by multiple departments (compliance, engineering, information technology, accounting and production);

• All data is accompanied or directly attributable to a verifiable source document, such as an engineering drawing or written specification;

• Compliance approval is required for setup of all information that flows to a regulated record; and

• A&D Records are only populated based on computer data, not by direct manual entry.

It should be noted that, with respect to the final point, just because that A&D Records are populated from computer data does not mean that the same rigors for validating the data is true, accurate and correct are not required. You must still verify all information off the metal of the firearm.

23

Firearm Packing

Pack Accuracy and Avoiding Wrong-Gun-In-Box

Accuracy in the outgoing product labeling process at a manufacturer can be a significant issue. While not directly illegal – it’s not illegal to have the wrong gun in the wrong box inside your factory; it is a driver of both lost firearms and incorrect data in a licensee’s A&D Records. Upon shipment of a wrong gun in box, your bookkeeping likely does not properly reflect the actual serial numbers involved, particularly if post-packing transactions are based off of the box serial number, and not the serial number on the firearm contained within.

As an example of the potential failure, consider the following: Before a firearm leaves your manufacturing plant, it is first packaged. The packing not only protects the firearm when in transit, but also serves a marketing pur-pose when at its ultimate retail location. When it is ready for departure from your plant, some indicator on the box is checked to make sure that it matches your records. This is a necessary component of the dispositions process. Unfortunately, Wrong Gun in Box transaction errors can occur. A WGIB violation happens when the bar code, label, or some other indicator on the packaging doesn’t match the physical firearm inside of the box. In other words, while the packaging picture, title, and barcode might suggest that the firearm inside is a hunting rifle, some error in the manufacturing process acciden-tally placed a sporting shotgun in the wrong box, or a gun of similar physical and regu-latory characteristics but labeled the packaging with an incorrect serial number.

Unexpected Consequences

WGIB transaction errors will not only impact your legal risks, but your reputation and consumer opinion. When you mislabel the product, consumers are receiving something that they didn’t purchase – even if it is the exact same model, just with a different seri-al number. Unfortunately, buyers are notoriously capricious, and a single error is often all it takes to turn a client away from your business. This buyer may spread the word, and you may find your firm having a reputation for delivering the wrong firearm. By shipping out a different firearm than the one you intended, the odds are overwhelmingly likely that you’ve shipped out a different firearm than the one recorded in your bound book. This means you have also violated one of your most important responsibilities as a manufacturer of firearms, and are potentially subject to legal repercussions. ATF has been known to get calls from buyers asking how to properly record these “wrong” serial numbers, looking for guidance while unfortunately throwing you under the bus at the same time.

Improving Packaging Accuracy

Internal control strategies will substantially reduce the likelihood of labeling error and, as a result, considerably mitigate your legal and consumer risks. Ensuring packaging accuracy is an area that a licensee is better served by deploying preventative, rather than detective controls, as wrong gun in box is often a lagging indicator of a compliance

24

problem; a wrong-gun-in-box may not be discovered until more than six months have passed from the time of the original error. By then, given the time that has gone by, the inaccuracies in the A&D Record have become irreconcilable or present themselves as “ghost” firearms – firearms that physically left your facility, but remain on the A&D record because the disposition information was incorrect.

Weight Checks

Implementation of product weight checking in addition to your Dual Blind Entry strate-gies will further reduce wrong gun in box errors from the outgoing end of operations. By checking the product weight as a final checkpoint, you will guarantee a match between the firearm and the box: if the packaged firearm isn’t the anticipated weight, then you’ve packaged the wrong firearm.

One Piece Flow – Not Just for Manufacturing

In addition to this triple-check disposition system, box labels should only be printed one at a time. This process should also involve heavy user access controls around the reprint label process, thereby limiting or restricting the ability to print duplicate labels. This will reduce the occurrence of mislabeling from incoming end of disposition opera-tions.

The implementation of these three operations strategies, in concert, will dramatically reduce the errors in your product/label consistency. By reducing errors, you will increase the reliability of your disposition process, reduce your legal risk, and increase consumer faith in your organization.

Repairs and Returns

The bulk of your packing operations may occur at the end of your production flow. However, the same controls need to be implemented in other areas where a firearm are packed or unpacked when an alternate or diversionary process is made. Non-standard processes such as repair, particularly if firearms are unpacked from their boxes during the process, are one such example. As a general rule, anytime a firearm is placed in a box, controls to ensure correct packing (double verification, weight verification, etc.) should be used. The same is true when a firearm is re-packed. Do not assume that that the firearm will make its way back into the correct box. If the physical barrier that ensures the correct firearm is in the box should be breached (e.g., the box itself), re-packaging or re-labeling that box should use equally stringent controls.

25

Controlling Scrap DispositionsProduction fallout is inevitable in a manu-facturing environment. Regardless of the cause, all manufacturers (and many gun-smiths) will find themselves in a situation with an irreparable firearm unfit for rework. When this happens, best practices dictate a need or want to discard and destroy, or scrap, the firearm(s). The scrapping process is heavily governed by compliance regulation. Unfortunately, errors here pose compliance risks for your company, and are a frequent driver of “lost” firearms. Note that many of these firearms are not lost, per se. Rather, a recordkeeping or data error will fail to dis-position the scrapped firearm, leaving the licensee with an open acquisition in the A&D Record with no corresponding firearm.

In just about every industry, scrap is an area of operation open to theft/loss. The fire-arms industry is no exception. While strong security controls typically exist during the manufacturing process, especially after the creation of an adaptable receiver, the scrap process is often disregarded for controls, arguably because what is usually there is broken. In the eyes of industry professionals, products unfit for rework have lost any value to the company. However, they still retain a tremendous value in that they pose a significant risk to your company. Firearms assigned for destruction and scrapping are still legally firearms, and must be disposed of as such. Thus, any inaccuracy or error in the disposition of a “to-be-scrapped” firearm is treated just as severely as any indiscre-tion in the disposition of a normal firearm. Additionally, the ATF has recently expressed concerns regarding the traceability of scrap. According to one Special Agent of the ATF, the “street value” of an unserialized, “scrapped” firearm is approximately four (4) times higher than a similar, serialized firearm. In addition to the regulatory and recordkeeping risks, scrap areas should be secured to avoid pilferage, which may lead to diversion to the criminal element.

Strong internal controls and strict segregation of duties must be considered and imple-mented when designing your scrapping process. For instance, no one individual should be able to independently scrap a firearm and dispose of it from your bound Book of Ac-quisition and Disposition. This is not only due to the potential for error in any singular process, but any employee or sovereign agent acting independently is also significantly more subject to impulse, negligence, and general corruption.

To mitigate these risks, establish a strong segregation of duties in your scrapping pro-cess. For example, one employee would record the serial number into the system and place the firearm into a locked cage. You might then only allow access to this locked cage by an independent compliance counsel, who might check it on a daily or week-ly process. When the locked cage is checked by this independent party, he/she might

Photo credit: Newsweek

26

re-enter or re-verify the serial number at the point of destruction. This dual entry or dual validation will, hopefully, create a system match and a disposition into the bound Book of Acquisition and Disposition. If a match is not created, you will have the information and authority to investigate it internally and remove any corporate liability.

This is just an example of how you might employ internal control and establish segrega-tion of duty. By doing so, you both reduce personal liability on the part of your employ-ees and ensure a more robust and reliable scrapping process.

Scrap as routinely as possible, and do not allow scrap to accumulate. The longer it sits around, the greater the risks of loss, data mismanagement or pilferage can be. Addi-tionally, consider retaining proof of destruction for all scrap transactions. While time consuming, and in no way a substitute for adherence to the regulations, having access to a secondary reference of destroyed firearms can be extremely beneficial in reconcil-ing records and physical inventory.

Firearms Marking

Firearms Marking – General Regulations

A licensed manufacturer or licensed importer of firearms must legibly identify each fire-arm by engraving each firearm with both a serial number and important supplementary information (27 CFR § 478.92).

How do I engrave a serial number upon a firearm? By engraving, casting, stamping (impressing), or otherwise conspicuously placing or causing to be engraved, cast, stamped (impressed), or placed on the frame or receiver thereof an individual serial number. The serial number must be placed in a manner not susceptible of being readily obliterated, altered, or removed, and must not duplicate any serial number placed by you on any other firearm. For firearms manufactured or imported on and after January 30, 2002, the engraving, casting, or stamping (impressing) of the serial number must be to a minimum depth of .003 inch and in a print size no smaller than 1/16 inch.

How do I engrave a firearm with the necessary additional information? By engrav-ing, casting, stamping (impressing), or otherwise conspicuously placing or caus-ing to be engraved, cast, stamped (impressed), or placed on the frame, receiver, or barrel thereof certain additional information. This information must be placed in a manner not susceptible of being readily obliterated, altered, or removed. For firearms manufactured or imported on and after January 30, 2002, the engraving, casting, or stamping (impressing) of this information must be to a minimum depth of .003 inch. The additional information includes:

• The model, if such designation has been made;• The caliber or gauge;• Your name (or recognized abbreviation) and also, when applicable, the name of

the foreign manufacturer;• In the case of a domestically made firearm, the city and state (or recognized

abbreviation thereof) where you, as the manufacturer, maintain your place of

27

business; and,• In the case of an imported firearm, the name of the country in which it was

manufactured and the city and state (or recognized abbreviation thereof) where you as the importer maintain your place of business. For additional require-ments relating to imported firearms, see Customs Duties at 19 CFR Part 134.

A firearm frame or receiver that is not a component part of a complete weapon at the time it is sold, shipped, or otherwise disposed of by you, must also be marked as required.

Allowable Timeframe for Marking

A frame or receiver must bear all required markings. In practice, since the frame or receiver is the core of the firearm, this is typically the first thing marked. This is espe-cially true when acquired from a third party manufacturer. Additionally, a completed firearm must be marked. This can vary by manufacturer depending on their manufac-turing operations. Once it is deemed regulated and before it enters commerce, it must be fully marked per the regulations. For official determination on whether a firearm is “complete” or regulated, a prototype may be sent down to ATF’s Firearms Technology Branch for analysis.

The allowable timeframe for the marking procedure can be found in the ATF Ruling 2012-1. The Ruling essentially states that for completed firearms (including finished frames and receivers to be sold, shipped, or disposed of separately), markings must be made within 7 days from the date of completion and must include the make, serial number, city and state of manufacturer, and model or caliber/gauge (when known) (27 CFR § 478.92). For imported firearms, you have 15 days for marking from the timethe firearms clear Customs, and must include: the model, if such designation has been made; caliber or gauge; name of the importer; name of the foreign manufacturer; coun-try in which the firearm was manufactured; city and state (or recognized abbreviation) where the importer maintains its place of business. If the imported firearm has some, but not all of the necessary markings, you have 15 days to complete the markings per above (www.atf.gov/files/publications/download/p/atf-p-5320-8/atf-p-5320-8. pdf). A firearm frame or receiver not built into a complete weapon when sold, shipped, or otherwise disposed of, must still be legally marked in accordance with the same regu-lations and rulings. Bear in mind that the same regulations apply to engineering sam-ples/prototypes and firearms made out of alternative materials during the research and development process.

Marking Variances

Manufacturing circumstances sometimes create the requirement for marking by more than one distinct entity. This is often the case when a firearm is subject to additional manufacturing processes by a third party. Since the regulations require each manu-facturer to mark the firearm, the potential exists that multiple sets of markings would be applied and confuse customers and law enforcement personnel during the tracing process.

As an alternative, licensees may submit a request for a “marking variance” to the ATF’s Firearms Industry Programs Branch that permits the subcontractor exception to the

28

marking rule. This essentially allows either the subcontractor to mark the firearm with the manufacturer’s marks (previously assigned and approved through the variance) or if the firearm was already marked by the manufacturer, it exempts the subcontractor from also having to place his markings on the firearm.

According to the ATF, all of the following information should be submitted, along with a letter of application for a marking variance, to the Firearms Industry Programs Branch:

The ATF recognizes that some manufacturers may have proprietary concerns disclosing, in a single marking variance request, all parties involved in the manufacture of a partic-ular firearm. As such, the ATF has set forth a procedure for preventing the disclosure of the identity to secondary process manufacturers, should that be a concern to your manufacturing business:

“If the ultimate manufacturer of the firearms has any proprietary concerns regarding disclosing the identity of any of the participating secondary manufacturers to all of the other secondary manufacturers contracted or subcontracted to perform work on the fire-arms, the ultimate manufacturer can submit individual letters of request to ATF indicat-ing each of the secondary manufacturers separately who are participating in the manu-facturing process. ATF will address each request in a separate marking variance approval so the identity of the secondary manufacturers is kept proprietary”

(Open Letter to All Federal Firearms License Holders Regarding Marking Variances www.atf.gov/press/releases/2008/08/082208-openletter-ffl-marking-variances.html.

An Alternative to Marking Variances – ATF Rul. 2009-5

In 2009, the ATF promulgated additional rulings regarding the use of “non-marking variances” (e.g., when a manufacturer seeks to omit placing their regulated information on a firearm). Previously, if a licensed manufacturer was engaging in secondary pro-cess manufacturing and sought to omit their regulated information from the firearm, a non-marking variance was required, or such specific authorization was required to be disclosed in the original marking variance request. Owing the change to a number of

Identify the maker of the firearm receiver:• Name• Address, including City and State• Federal Firearms License number

Identify the recipient of the firearm receiver:• Name• Address, including City and State• Federal Firearms License number

Identify any other participant in the manufacturing process:• Name• Address, including City and State• Federal Firearms License number• Manufacturing process to be completed

In addition, the ATF requires that you identify:• The model of the firearm• The type/style of the firearm• The make of the firearm• The caliber or gauge of the firearm• The serial number scheme to be used

https://www.atf.gov/firearms/docs/open-letter/all-ffls-aug2008-open-letter-clarification-ffls-obtaining-marking-variance/download

29

specific inquiries on this subject, the ATF stated in ATF Rul. 2009-5 that, in certain instances, a secondary process manufacturer does not need to mark its relevant regula-tory tracing information of firearms of which they are a secondary process manufacturer, if the following conditions are met:

Licensed manufacturers who perform a manufacturing process on firearms for, or on behalf of, another licensed manufacturer need not place their serial numbers and other identification markings on firearms as required by 27 CFR 478.92(a) and 479.102(a), provided the following conditions have been met:

(1) The manufacturer is receiving the firearms, including frames or receivers, from another manufacturer.

(2) The manufacturer is performing a manufacturing process on the firearms as directed by another manufacturer before distributing those firearms to another manufacturer or into the wholesale or retail market.

(3) All manufacturers involved in the manufacturing process possess a valid Federal firearms manufacturer’s license issued by ATF and are performing only the man-ufacturing processes authorized under that license.

(4) The firearms, including frames and receivers, are already properly marked with a serial number and all other identifying markings in accordance with 27 CFR 478.92(a) and, if applicable, 479.102(a).

(5) Prior to engaging in the manufacturing process, the manufacturer desiring not to mark must submit to ATF the following information:

(a) The manufacturer’s name, address, and license number, and the name, address, and license number of the manufacturer for which the manu-facturing process is being performed;

(b) A copy of the license held by each manufacturer; (c) A description of the type of manufacturing process to be performed by

the manufacturer desiring not to mark; (d) The model(s), if assigned, of the firearms subject to the manufacturing

process described; (e) The serial numbers of the firearms in sequential order; (f) The calibers or gauges of the firearms; and (g) Any other information

concerning the firearms manufacturer(s) or manufacturing process that ATF may require.

(6) The manufacturer desiring not to mark must maintain copies of its submission to ATF of the information required by this ruling with its permanent records of manufacture. The manufacturer availing itself of this ruling should retain proof of its submission to ATF (e.g., certified return receipt mail or tracking number). This proof of submission should show that it was sent to ATF’s Firearms Technol-ogy Branch, or any other office that ATF may designate as the proper recipient of such information. Additionally, the manufacturer must allow ATF representatives to inspect such documents upon request at any time during business hours with-out a warrant.

30

(7) All manufacturers involved in the manufacturing process must maintain all records required by Federal law and regulation. Once the manufacturer has sub-mitted the necessary documentation to ATF pursuant to this ruling, and provided the manufacturer has complied with all other conditions set forth in this ruling, no “non-marking variance” approval from ATF is required, and the manufacturer may engage in the manufacturing process for, or on behalf of, another licensed manufacturer without placing its identifying markings on the firearms in accor-dance with 27 CFR 478.92(a) and 479.102(a).

As a secondary effect of ATF Rul. 2009-5, ATF has been extremely reluctant to approve so-named “non-marking variances”, and expects secondary process manufacturing to be conducted in a manner consistent with this ruling. In fairness, the ruling provides a greater degree of flexibility to the primary manufacturer, in that certain operational con-straints are no longer an issue (e.g., a manufacturer can engage a alternate or additional secondary process manufacture without obtaining prior approval from the ATF, provided the requirements of the ruling are met.)

Other Considerations Regarding Tractability and Markings

In some instances, manufacturers utilize seri-alized metal inserts in their polymer firearms. Although it is not a regulated item, it is advisable to control the serialized asset similar in nature to a completed firearm to assist with record-keeping practices.

ATF Ruling 2013-3 authorizes licensed manu-facturers and licensed importers of firearms, and makers of National Firearms Act (NFA) firearms, to adopt the serial number, caliber/gauge, and/or model already identified on a firearm without seeking a marking variance, provided all of the conditions in this ruling are met.

Implementing Firearm Marking Controls

Marking control primarily relates to manufacturers and those who conduct manufactur-ing processes. These will help you ensure that your organization meets all of its neces-sary marking requirements.

• Engineering: An industry best practice, and way to help maintain your federal-ly-mandated marking requirements, is to define marking parameters in your engi-neering drawings.

• Purchasing: If serialized items are to be manufactured by a third party, or if a third party is to perform an operation on a firearm (for example, melonite), the engineer-ing drawings and marking requirements should flow through to purchase orders and inspection plans.

31

• Inspection: The in-bound inspection process is an important monitoring tool for identifying third party markings that may not be correct. If your organization does not use this system, you might consider doing so.

• Receiving and Shipping: Points of material flow (e.g., receiving, shipping, or security points) should have a formal responsibility for ensuring that no firearm leaves the facility without proper marking. Checks should be made to ensure that no serial number has been obliterated, tampered with, or otherwise compromised. If optical scanners are to be used to read serial numbers, the serialization process should be designed so that the reading is done with a high degree of integrity.

• Production: Ideally, production would be responsible for measuring the depth and height of markings. While the regulations specify the legal minimums for height and depth to be, the ATF has not offered specific guidance on the technology or methodology to be used, be it mechanical gauging, laser profile scanning, non-contact vision measurement or the like. Measurement of marking depths must be done from the flat surface of the firearm to the bottom of the engraving, and not from any beads of material that may develop from the marking process. In addition, any surface applications, such as hydra-dip, cerakote, or powder coating are to be considered in any depth determination.

Another important role in production would be to ensure that someone consistently track and review marking variances to remain compliant with the terms of the variance. The serial number schemes must be adhered to; manufacturing outside of these ap-proved schemes could cause your product to be subject to destruction, or revocation of the marking variance. It is important for someone to assess the volume needs associat-ed with the variance and predict the need for future variances or increased serial num-ber blocks that may be used. At times the variance approval process can take months so planning ahead is crucial.

• Inventory Management: Marked and unmarked firearms should be physically sep-arated and stored on shelves that are labeled appropriately. Unmarked firearms (works in progress that are pre-serialized) should be stored on staging shelves with visible dates that permit operations to identify any delays in the process.

• Customer Service: Customer Service and its warranty or replacement operations serve as a monitoring control to ensure that customers have not modified mark-ings or obliterated serial numbers.

• Security: Points of material flow (receiving, shipping, security points) should have a formal responsibility for ensuring that no firearm leaves or enters the facility without proper marking. Checks should be made to ensure that no serial number has been obliterated.

• Legal, Compliance and Audit: A written policy should be generated that specifies the marking requirements for the organization. Periodic audits should be per-formed to identify unmarked firearms that have delayed beyond the ATF’s expec-tation.

32

Marking Time Constraints and ATF Ruling 2012-1ATF Ruling 2012-1 specifies the updated, clarified time-constraints for firearms manu-facturers and importers seeking to mark their firearms. The appropriate excerpt, defin-ing all the time restrictions of the marking process, reads as follows:

“Under the regulations, section 478.92, firearms required to be marked at the time of manufacture include both “complete weapons,” and complete frames or receivers of such weapons that are to be sold, shipped, or otherwise disposed of separately. Because identifying firearms is an integral part of the manufacturing process, and sections 923(i) and 478.92 do not specify a time period in which to identify firearms, licensed manufacturers are required to mark them during the manufacturing process. Reading the marking requirement for complete weapons in section 478.92(a) together with the seven day record-keeping requirement for complete firearms in section 478.123(a), ATF concludes that it is reasonable for a manufacturer to have seven (7) days following the date of completion (to include a firearm in knockdown condition, i.e., complete as to all component parts, or a frame or receiver to be sold, shipped, or disposed of separately) in which to mark the firearm and record its identifying information in the manufac-turer’s permanent records. Further, because firearm frames and receivers to be sold, shipped, or disposed of separately do not have a barrel at the time they are marked, pursuant to 478.92(a)(2), all of the information required by 478.92(a)(1) must be placed on the frame or receiver, unless an alternate means of identi-fication is approved (i.e., a “non-marking variance”) under section 478.92(a)(4). The model designation and the caliber or gauge may be omitted without a vari-ance if that information is unknown at the time the firearm frames or receivers are marked.

Nonetheless, ATF recognizes that a manufacturer may require more than seven days to finish the manufacturing process from beginning to end with the required markings, depending on the nature of the process involved. Some firearms may take more time due to differences in the type and capability of the firearm, ma-terials and components, and complexity of the assembly and finishing processes. ATF also recognizes that the equipment necessary to identify the firearms must be available and in working order. However, once the entire manufacturing pro-cess has ended, manufacturers must ensure that the firearms have been marked in the manner required by section 478.92.

To facilitate inspection and ensure that ATF can determine that a licensed manufacturer has not unreasonably held completed firearms (to include finished frames and receivers to be sold, shipped, or disposed of separately) after seven (7) days from the date of completion without their required markings, licensees may take the following steps:

(1) Maintain a copy of the current, active license of all contracted licensees;(2) Maintain records of firearms production;(3) Maintain work orders, contracts, and related instructions for services rendered that describe the various firearm manufacturing processes;(4) Maintain orders for firearm parts that have yet to be received; and(5) Maintain invoices to repair non-functioning machines.

33

GovernanceAlthough federal regulators are tasked with enforcing the continued compliance of businesses, being compliant starts at home with your own staff and own Compliance Program. In order to maintain both your business’ compliance and a responsible rela-tionship with the ATF, self-governance and transparency is essential.

Self-Governance

Establishing a reliable, efficient monitoring process may save you a considerable amount of time and money down the road. In addition, without an established monitor-ing system, it will be incredibly difficult to maintain a long-term compliance initiative. Establishing a compliance monitoring program, and defining what metrics will be moni-tored and reported on is critical to success.

Perhaps more importantly, the Federal Sentencing Guidelines list monitoring activities as a key expectation for meeting the federal standards for an effective Compliance Program. Monitoring is a key component of demonstrating to the Government that your company takes compliance seriously. Considerations Before Establishing Your Monitoring Process

Before establishing your company’s compliance monitoring program, you should give thought to some of the following considerations:

• The tools that will be used for measuring and reporting, such as audit processes, reports derived from other sources and escalations from operations;

• The terminology that will be used for measuring and reporting; and,• The fact that monitoring should be limited exclusively to operational fact without

an interpretation of the law. Monitoring should generate a completely quanti-tative output, despite the qualitative and/or interpretative nature of the law and regulations.

Methods for Self-Monitoring

While the particular process of self-monitoring should be tailored specifically to your business, there are some general methods we recommend for implementation:

Develop a common set of ATF compliance metrics. It is recommended that you track instances which could result in a report of violations by the ATF. However, be sure to consult with your legal counsel before documenting your errors. There are appropriate ways to handle this so that it provides constructive benefit for your organization. Exam-ples of possible metrics include:

• Wrong-gun in box;• Acquisition and disposition errors, including firearms “shipped – not disposed”

and “received – not acquired”. ;• Delays in acquisition and disposition entries;• 4473 processing errors;• Multiple sales form errors;

34

• Import processing and form filing errors.

When defining metrics, understand your underlying processes and systems and use that information to best define what information you want – or need – to capture. Capturing data for the sake of reporting is not effective – you must capture data in such a way that you can identify and implement a solution to errors. While every traceable metric should flow back to a potential citable violation (e.g., 4473 processing errors), the met-rics specific to your organization will vary based on processes that drive those error

Orchid Advisors - A Working Guide to The Firearms Industry...

Documents

Transcript of Orchid Advisors - A Working Guide to The Firearms Industry...