By Teresa G. Ficaretta, Esq. & Johanna Reeves, Esq.
ATF’s Demand Letter Program–Alive and Well Since 2000
In 2000 the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) began a program it calls the “Demand Letter Program,” which requires federal firearms licensees (FFLs) who receive such letters to report specified information to the agency concerning the FFL’s acquisition and/or disposition of certain firearms. The program was expanded in 2011 to require FFLs in four states along the southwest border to provide multiple sales reports for specified semi-automatic rifles. This article will address the reasons ATF established the demand letter program, summarize the requirements of Demand Letter 1, Demand Letter 2 and Demand Letter 3 and discuss litigation challenging the program.
I. Legal Background
The Gun Control Act of 1968 (GCA) requires FFLs to maintain records of importation, production, shipment, receipt, sale or other disposition of firearms as specified in regulations issued by ATF. ATF has a right to inspect such records, without a warrant, during an annual compliance inspection, at any time in connection with tracing of crime guns or in the course of an investigation of a person other than the FFL whose records are being inspected. The GCA requires FFLs to respond to ATF firearms trace requests within 24 hours.
Since 1968, the GCA has included a provision giving ATF the authority to require FFLs to report firearms record information to ATF when requested to do so by letter. This legal authority provides the basis for the demand letters that are the subject of this article.
II. Demand Letters and the Reasons They Are Sent to FFLs
1. Demand Letter 1
Demand Letter 1 is related to ATF’s firearms tracing program, which is an important part of the agency’s mission to assist other federal, state and local law enforcement agencies in investigating firearms-related crime. ATF traces firearms when they are recovered by a law enforcement agency as a “crime gun.” ATF defines “crime gun” as any firearm that is illegally possessed, used in a crime or suspected by law enforcement officials of having been used in a crime. However, we note that ATF acknowledges in its firearms trace data disclaimer that not all firearms traced are used in crime.
Trace requests are submitted to ATF’s National Tracing Center via telephone, fax or through ATF’s e-Trace program. Tracing begins with the requesting agency providing information about the markings on the firearm. This information allows ATF to identify the manufacturer or importer of the firearm. ATF personnel then contact the manufacturer or importer and, using their GCA records, trace the firearm through distributors to the first retail purchaser of record. ATF provides trace information to the law enforcement agency requesting the trace, giving the agency information that can be useful in investigating firearms-related crime. Failure of FFLs to respond to trace requests at all or in a timely manner prevents ATF from effectively carrying out its tracing program.
ATF began issuing Demand Letter 1 in February 2000 to address the problem of FFLs who fail to comply with the statutory requirement to respond to firearm trace requests within 24 hours. FFLs who receive Demand Letter 1 must send ATF complete copies of their acquisition and disposition records for the last three years and continue to send the records to ATF on a monthly basis until told otherwise. The information provided by the FFL is used by ATF to trace firearms if the FFL continues to be uncooperative with such requests. There are generally very few FFLs who receive Demand Letter 1 in a given year, as the vast majority of FFLs comply with their statutory responsibility to provide ATF with trace information on a timely basis. In litigation challenging Demand Letter 1, ATF stated that less than 0.1 percent of all FFLs received the letter.
The cost of complying with Demand Letter 1 is significant, as it requires FFLs to provide ATF with an initial report of three years of acquisition and disposition information, followed by monthly reports thereafter. FFLs who receive Demand Letter 1 quickly learn the importance of responding to trace requests and are generally dropped from the Demand Letter program within one to two years of receiving the letter from ATF.
2. Demand Letter 2
ATF began issuing Demand Letter 2 in February 2000, at the same time the agency began the Demand Letter 1 program. The purpose of the Demand Letter 2 program was to provide ATF with information on used gun acquisitions. Used firearms are difficult or impossible to trace once they are sold to a consumer and leave the inventory of a FFL. When ATF receives a trace request for a firearm that was sold by a retail FFL and the firearm is no longer in the hands of the consumer who purchased it, ATF must rely primarily on interviews of individuals involved in the chain of distribution to trace the firearms. The interviews are time-consuming and frequently unproductive. For this reason, ATF generally does not trace used firearms unless they are involved in a high-profile crime.
Demand Letter 2 was intended to provide ATF with data on the acquisition of used firearms by certain FFLs to give ATF data useful in tracing such used firearms. In 2000 ATF sent Demand Letter 2 to FFLs who in 1999 received from ATF requests to trace 10 or more firearms with a short “time-to-crime” of three years or less. “Time-to-crime” is the time from the retail sale of the firearm to the time it is recovered at a crime scene or is traced. ATF stated in litigation challenging Demand Letter 2 that average time-to-crime for traced firearms is six years, and a time-to-crime of three years or less is a trafficking indicator. The demand letters sent to approximately 450 FFLs in 2000 stated that ATF research indicated a significant number of traces of new firearms may also mean the FFL was selling a high volume of secondhand firearms used in crime. Accordingly, the ATF letters required the FFL to provide acquisition information on the secondhand firearms they acquired during 1999. The reports must be provided on a quarterly basis. Significantly, the letters do not require FFLs to provide any information about the name of the purchaser of the secondhand firearm. Only if the firearm is the subject of a trace request would ATF contact the FFL to obtain this information. ATF fashioned the Demand Letter 2 program in this manner to avoid any appearance the agency was creating a registry of firearms owners.
The Demand Letter 2 Program continues, and each year ATF evaluates and adjusts the number of short time-to-crime traces that will be required for a particular FFL to be included in the program. The 10 or more figure was used in 2000, but ATF may bump it up to 15, 20 or more, depending on the number of crime gun traces in a particular year and the agency’s resources available to enter the data from demand letters into the firearms tracing system.
Compliance with Demand Letter 2 is burdensome for FFLs, as identifying used firearm sales may be challenging and preparing quarterly reports is resource-intensive. The program has been criticized because even the most compliant FFLs may receive Demand Letter 2 if they are located in an urban, high-crime area. Location is a good predictor of short time-to-crime traces even when the FFL is fully compliant with the law and regulations. The only solution for compliant FFLs who receive Demand Letter 2 year after year may be to relocate.
3. Demand Letter 3
In December, 2010, ATF announced its intention of establishing the Demand Letter 3 Program. The purpose of the program, as announced by ATF’s then-Director, Kenneth Melson, was to obtain actionable law enforcement intelligence to help reduce criminal firearms trafficking along the Southwest Border. Implementation of the program was delayed until July 2011, because ATF was required to obtain approval from the Office of Management and Budget for the collections of information required by the program. As part of that process ATF published in the Federal Register two notices concerning the program and evaluated over 12,000 comments from the public.
When Director Melson announced Demand Letter Program 3 in December 2010, he explained that there was a significant increase in drug and firearms-related violence in Mexico and along the U.S. Southwest Border beginning in 2006. He further stated that ATF tracing data, investigative experience and Mexican law enforcement officials indicated that a large number of rifles were being used in violent crimes in Mexico and along the border. The Demand Letter 3 program was intended to implement limited reporting of multiple sales of certain long guns by licensees in specified border states. The multiple sales reporting requirement is similar to that imposed for handguns under the Gun Control Act but applies only to licensed dealers in Texas, New Mexico, Arizona and California, which Director Melson stated are major source states for crime guns seized in Mexico and traced to federal firearms licensees. The reporting requirement of Demand Letter 3 applies only to the following rifles:
- Semi-automatic action;
- Caliber greater than .22; and
- Ability to accept a detachable magazine.
Director Melson announced the Demand Letter 3 program would be adopted as a one-year pilot program. The letters requiring licensed dealers to report their multiple sales of specified rifles were sent out in July 2011. The letters required licensees to begin reporting multiple sales occurring on or after August 14, 2011, and to continue submitting the reports until directed by ATF to stop. ATF Form 3310.12, Report of Multiple Sale or Other Disposition of Certain Rifles, must be completed for any transaction in which an unlicensed person acquired, at one time or during five consecutive business days, two or more of the specified rifles. The form must be submitted to ATF’s National Tracing Center no later than the close of business on the day the multiple sale occurs. The reason ATF requires that Demand Letter 3 information be submitted immediately, rather than on a monthly or quarterly basis, is ATF’s belief that multiple sales of the specified rifles are a strong indicator of trafficking. If the information is submitted to ATF immediately after the firearms are acquired, ATF is able to investigate the purchase in a timely manner.
In litigation challenging Demand Letter 3 ATF stated that most firearms trafficked into Mexico are facilitated by Mexican drug trafficking organizations who recruit straw purchasers in the U.S. to obtain certain firearms. Because the straw purchasers are not prohibited by law from acquiring the firearms, it is difficult to identify them as agents of drug cartels. The information acquired from Demand Letter 3 was intended to give ATF additional, timely intelligence to aid them in detecting firearms trafficking along the Southwest Border.
An information collection notice published in the Federal Register in 2014 relating to the Demand Letter 3 program indicates that the number of licensees required to report multiple sales of the specified rifles at that time was 2,509. A Fact Sheet dated February 2015 for the National Tracing Center currently posted on ATF’s website indicates that the Demand Letter 3 program is ongoing.
Litigation Challenging Demand Letters
All of ATF’s Demand Letter programs have been challenged in federal court and upheld as a lawful exercise of ATF’s authority under the Gun Control Act.
Demand Letter 1 was challenged in 2001 in the Fourth Circuit in RSM, Inc., v. Buckles. The plaintiff, a licensed dealer in Baltimore, Maryland, challenged the ATF letter requiring him to submit his acquisition and disposition records for the past three years to ATF, claiming that it violated the Gun Control Act, the Fourth and Fifth Amendments to the Constitution, appropriations restrictions and the Administrative Procedure Act. The District Court held that the letter violated the Gun Control Act and permanently enjoined ATF from enforcing the letter. The Fourth Circuit reversed, holding that the Gun Control Act does not prohibit ATF from requiring that records of federal firearms licensees be sent to the agency when directed to do so by letter. The court noted the statute does not give ATF “an unbounded delegation of authority to request record information,” for any purpose. Moreover, the court cautioned that the demand letter authority cannot be used in a “backdoor effort” by ATF to establish a firearms registry. The court noted that because ATF issued Demand Letter 1 to only 41 licensees who failed to comply with statutory trace requests, it was a narrowly tailored program that is consistent with its authority under the statute. The court also held that the program did not require notice-and-comment rulemaking under the Administrative Procedure Act because the delegation of authority to the National Tracing Center was not a substantive rule requiring such process.
Demand Letter 2 was challenged and upheld in 2003 in the Fourth Circuit. In Blaustein & Reich, Inc. v. Buckles, a licensee in Norfolk, Virginia, challenged Demand Letter 2 on the basis that it exceeded ATF’s authority under the statute and that the criteria used to identify licensees for the program were arbitrary and capricious. The licensee also claimed that collection of the information from the 450 licensees subject to Demand Letter 2 resulted in creation of a national firearms registry. The District Court granted summary judgment to the government, and the licensee appealed to the Fourth Circuit Court of Appeals.
The Fourth Circuit rejected all of the licensee’s arguments, holding that the demand letter provision of the Gun Control Act expressly gives ATF authority to require limited information from a licensee’s records and is not limited to issuing demand letters in connection with a criminal investigation or to noncompliant licensees. The court also rejected the contention that the program amounts to creating a national registry of firearms. The court noted that ATF regulations referencing demand letters were first issued in 1968, predating the restriction imposed by the Firearms Owners Protection Act (FOPA) on adopting rules or regulations that require licensee records be transferred to an ATF facility. The regulations also predate the language added to the statute by FOPA on establishing a system of registration. Similarly, the court held that the Demand Letter Program did not violate an appropriations restriction on centralizing or consolidating licensee records. The court noted that the plain meaning of “centralizing or consolidating” does not prohibit ATF from the mere collection of “limited information.” Because Demand Letter 2 was sent to less than 1 percent of all licensees and requested only a portion of their records, the court held there was no violation of the appropriations restriction.
Demand Letter 2 was also challenged and upheld in 2007 in the Ninth Circuit. In J&G Sales Ltd. V. Truscott, the plaintiff challenged Demand Letter 2 on essentially the same grounds as the plaintiff in Blaustein & Reich. The District Court held that the Demand Letter was an unlawful request for the licensee’s records because it was beyond the scope of the Gun Control Act. The government appealed. The Ninth Circuit held that the plain language of the demand letter provision of the Gun Control Act gave ATF the authority to issue the letter. The court noted the letter was sent to a small fraction of FFLs and sought only a limited subset of information regarding a limited subset of firearms. The court found that the narrow scope of the program clearly avoided the prohibition on establishing a national firearms registry. The court also agreed with the Fourth Circuit that the prohibition on prescribing new rules or regulation after FOPA that require licensee records to be transferred to a government facility was not violated. The court held that the letter at issue was not a “rule” affected by the restriction. Finally, the court held that the criteria ATF used for determining which licensees would receive Demand Letter 2 were not arbitrary and capricious.
Demand Letter 3 was challenged and upheld in the District Court for the District of Columbia in National Shooting Sports Foundation, Inc. v. Jones. The primary basis for the challenge was that requiring the multiple sale reports for rifles to be sent to ATF amounted to creation of a national firearms registry. The court granted summary judgment to ATF, holding that the Demand Letter Program was a lawful, careful balance between ATF’s authority to regulate firearms and the right to privacy held by lawful firearms owners.
Demand Letter 3 was also addressed in 2013 by the Fifth Circuit in 10 Ring Precision, Inc. v. Jones, and by the Tenth Circuit in 2014 in Ron Peterson Firearms, LLC v. Jones. Both Courts of Appeal upheld Demand Letter 3 as a valid exercise of ATF’s authority under the Gun Control Act.
ATF’s authority to require licensees to submit information from their required records through the Demand Letter Program is well established in law. As long as ATF continues to use its authority to require limited information from licensee records for valid law enforcement purposes, the agency is likely to continue to succeed in defending its use of this authority in federal court. Licensees who receive Demand Letter 1, Demand Letter 2 or Demand Letter 3 should comply with the reporting requirements specified in the letter. Failure to comply may result in ATF issuing a notice of proposed revocation for the licensee’s federal firearms licenses.
The information contained in this article is for general informational and educational purposes only and is not intended to be construed or used as legal advice or as legal opinion. You should not rely or act on any information contained in this article without first seeking the advice of an attorney. Receipt of this article does not establish an attorney-client relationship.
About the authors
Johanna Reeves is the founding partner of the law firm Reeves & Dola, LLP in Washington, DC (www.reevesdola.com). For more than 10 years she has dedicated her practice to advising and representing U.S. companies on compliance matters arising under the federal firearms laws and U.S. export controls.
Teresa Ficaretta is one of the country’s foremost experts on ATF regulations under the Gun Control Act, the National Firearms Act, the Arms Export Control Act and federal explosives laws. Before joining Reeves & Dola in 2013, Teresa served as legal counsel to ATF for 26 years, followed by two years as Deputy Assistant Director in Enforcement Programs and Services. They can be reached at 202-683-4200.
|This article first appeared in Small Arms Review V21N2 (March 2017)|