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The Business of Guns

Only 7 Percent of Licensed Gun Dealers Were Inspected Last Year

While American gun sellers process millions of firearms, their business practices are uniquely shielded from scrutiny.

Earlier this month, a jury ordered Badger Guns, one of the country’s most notorious “bad apple” firearms retailers, to pay nearly $6 million to two Milwaukee, Wisconsin, police officers who were shot with a weapon bought at the store in a straw purchase. It was only the second time in a decade that a negligence suit against a gun store reached a jury. And while the case highlighted how challenging it is to sue a gun seller for negligence, it also demonstrated the difficulty of bringing ne’erdowell dealers in line, or, failing that, shutting them down. In the two years leading up to the 2009 shooting, Badger racked up 130 federal violations. But the shop wasn’t forced to close its doors until 2011, in large part because gun dealers enjoy a number of allowances that merchants in other industries do not.

Most of the crime guns recovered in the U.S. can be traced back to a small percentage of licensed retailers. But for the last decade, the government’s procedures for policing federal firearms dealers (FFLs) as a whole has been hamstrung by the congressional budget rider referred to as the Tiahrt Amendments. The restrictive laws were boosted by gun rights activists who worried that too much oversight from the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) could lead to a federal gun registry, which in turn could give the government a tool to confiscate firearms.

The Gun Dealer Accountability Act, introduced on Wednesday by Representative Gwen Moore of Wisconsin, would increase the ATF’s ability to check up on potential problem dealers found by a court to have knowingly or negligently participated in an illegal gun sale, or shown to have sold more than 10 crime guns in a two-year period. But even if her legislation made it through the Republican Congress, gun dealers would still operate under a system that uniquely shields them from scrutiny. 

The ATF can only inspect a gun dealer once a year — and most gun dealers are inspected much less frequently than that 

At most, federal agents are allowed to visit gun sellers no more than once every twelve months to ensure compliance with the Gun Control Act of 1968, which established the federal licensing system for firearms dealers and mandates that anyone in the business of selling guns adhere to certain requirements. Any additional inspections require a warrant

The once-a-year rule is just the limit to how often the ATF can inspect a gun dealer. The agency’s goal is for its 780 inspectors to visit the country’s 140,000 licensed dealers every three to five years, a target they rarely meet. In 2013, only 42 percent of gun sellers had been inspected in the preceding five years. Last year, just 7 percent of dealers nationwide were inspected.

Even when an inspection raises flags, it can take a long time for agents to return. In the late ’90s, ATF inspectors arrived at Shawano Gun & Loan, a now-defunct gun dealer 150 miles north of Milwaukee, for an unannounced inspection and found that records were missing on the sale of at least 145 guns. Despite the violations, investigators didn’t return to the store for five years, citing tight budgets and overworked investigators. 

Businesses in other industries with implications for public health are subject to tougher oversight. The Food and Drug Administration (FDA) inspects tobacco retailers as many times a year as it sees fit. The same goes for alcohol retailers, which are inspected by the Tax and Trade Bureau (TTB), a division of the Department of the Treasury. The U.S. Drug Enforcement Agency (DEA), which regulates pharmaceutical manufacturers, is able to periodically audit registered controlled substance storage locations and laboratories across the country with no prior notice. It also enjoys wide latitude to shut down rogue Internet pharmacies.

The ATF cannot require gun dealers to hand over a record of their inventories

Gun sellers must report each missing, lost, or stolen firearm within 48 hours of discovery to the ATF and local police. But the Tiahrt Amendment prohibits the ATF from requiring gun dealers to submit inventories to the government. Gun safety prevention advocates argue that requiring gun dealers to submit inventory records would help prevent corrupt dealers from supplying the illegal market with guns they belatedly claim went missing.

Gun dealers keep track of sales in loose-leaf notebooks

Gun sellers must maintain a “bound book” containing sales transactions, described by the ATF as “a permanently bound book or an orderly arrangement of loose-leaf pages which must be maintained at the business premises.” (Blank ones can be picked up on Amazon.) Gun sellers must use their bound books to record each firearm’s manufacturer or importer, model, serial number, type of firearm, caliber or gauge, date received, date of sale, the name and address of the person to whom it was transferred, and the reference number on the 4473 form that prospective purchasers fill out before undergoing a background checks. To check if a bound book is accurate, the ATF will examine a random sampling of these records and match serial numbers to a gun store’s physical inventory. The most common violation incurred during an ATF inspection is for failing to keep a bound book updated.

The ATF is prevented from using any of its budget to enter gun dealer records into a digital database, unless the business is defunct. By contrast, information from FDA tobacco compliance inspections are available in a searchable online database. Results from FDA pharmacy inspections are also posted online. Legislation enacted after a meningitis outbreak in 2013 ordered the creation of a national system for tracking prescription drugs from manufacturers to retail pharmacies through serial numbers on bottles. No such digital repository would ever fly with the gun lobby, for whom anything remotely resembling a gun registration system is verboten. 

Even if a gun dealer is suspected of being a bad apple, putting it out of business can take years

Firearms dealers are entitled to an informal hearing to contest alleged Gun Control Act violations. The hearing officer will make recommendations to be reviewed by senior ATF officials, and if a dealer is found to be in violation and has their license revoked, they can appeal the decision in federal court — and continue to sell guns while the appeal is pending.

In 2007, Shawano Gun & Loan had its license revoked after investigators found that the shop was selling guns to straw buyers, but the store continued to sell guns for four years while the appeal was ongoing. One Florida magistrate judge presiding over the recent trial of two gun shop operators accused of receiving fully automatic weapons while out on bail declared this provision “unbelievable.”

[Photo: AP Photo/Bill Haber, File]