Review of the Bureau of Alcohol, Tobacco, Firearms and Explosives’
Implementation of the Safe Explosives Act

Evaluation and Inspections Report I-2005-005
March 2005
Office of the Inspector General

In this evaluation, the Office of the Inspector General (OIG) reviewed the Bureau of Alcohol, Tobacco, Firearms and Explosives’ (ATF) implementation of the Safe Explosives Act (SEA), which was enacted on November 25, 2002.1 The ATF is the chief enforcer of explosives laws and regulations in the United States, and is responsible for licensing and regulating explosives manufacturers, importers, dealers, and users. The ATF is also responsible for overseeing most explosives storage. This OIG evaluation examined the ATF’s license and permit operations, including how it conducts background checks before authorizing individuals to possess explosives. We also reviewed the ATF’s plans to establish the National Explosives Licensing Center and the ATF National Laboratory’s plans to collect and catalog samples of explosives as authorized by the SEA. Explosives are an integral component of the nation’s economy. More than 5 billion pounds of explosives are used each year in the United States for mining, construction and demolition projects, pyrotechnics, medicine (such as in heart medication and to break up kidney stones), automobile manufacturing (to inflate airbags), and numerous other industries. The SEA was implemented to enhance public safety by expanding the ATF’s licensing authority to include the intrastate manufacture, purchase, and use of explosives.2 The SEA also expanded the categories of “prohibited persons” to be denied access to explosives from four to seven. The new prohibited persons categories are aliens (with limited exceptions), persons who have been dishonorably discharged from the military, and individuals who have renounced their United States citizenship. These categories were added to the pre-existing categories of prohibited persons that included felons, fugitives, users of and persons addicted to controlled substances, and persons who have been adjudicated mentally defective or committed to mental institutions. In addition, the SEA required that proprietors, owners, and corporate officers of companies that manufacture, sell, or import explosives submit fingerprint cards and photographs to the ATF with their license applications. It also mandated that the ATF inspect licensees’ manufacturing and storage facilities at least once every three years. Finally, the SEA required the ATF to conduct background checks on all licensees, as well as all employees who have access to explosives as part of their work (Employee Possessors).3 In order to identify all prohibited persons, the ATF entered into an agreement with the Federal Bureau of Investigation (FBI) to perform these background checks.4 The SEA did not change the explosives types subject to the ATF’s licensing authority,as defined in 18 U.S.C. § 841, and it did not increase the number of explosives under the ATF’s control. Most notably, it did not extend the ATF’s regulatory authority over ammonium nitrate or other common chemicals that, when combined, become explosives. RESULTS IN BRIEF Our review found critical deficiencies in the ATF’s implementation of the background check and clearance process that prevented the agency from ensuring that prohibited persons are denied access to explosives. Our comparison of ATF and FBI data found no record that the ATF requested FBI background checks on 59 of 683 employees of explosive licensees (9 percent) whose ATF records we examined. We also determined that the ATF had failed to complete the background check process for over half (655 of 1,157) of the individuals identified by the FBI as possible prohibited persons. Consequently, these potentially prohibited persons were still authorized to access explosives. Through additional research, we found that several of these individuals had serious criminal records. For example, one of the individuals was a previously convicted felon who had been sentenced by a state court in late 2003 to 33 months’ incarceration for felony theft. We also found that the ATF frequently failed to complete the clearance adjudication process or enter final determinations of Employee Possessors’ status into its Federal Licensing System (FLS). As a result, the clearance status of 31 percent of the Employee Possessors we reviewed were listed as “pending” for an average of 299 days. Moreover, the ATF did not complete investigations for almost 300 individuals for whom the FBI could not resolve issues found through its National Instant Criminal Background Check System (NICS). In addition, the ATF had not timely adjudicated requests for relief from persons who were identified as prohibited persons and denied access to explosives. Further, the ATF Inspectors responsible for inspecting explosives licensees had not received adequate training in explosives products and operations, which resulted in inconsistent regulatory enforcement. Finally, almost two years after enactment of the SEA, we found that the ATF had begun only recently to plan for the collection and cataloging of samples of explosives at the ATF National Laboratory or to establish a National Explosives Licensing Center.5 We explain these findings in greater detail in the sections that follow. The ATF frequently failed to complete the background check and clearance process to ensure that prohibited persons are denied authorization to possess explosives. We found critical deficiencies in several aspects of the background check and clearance process implemented by the ATF to carry out the licensing requirements of the SEA. As detailed below, these deficiencies included not requesting background checks on all Employee Possessors, not acting when the FBI reported finding prohibiting information, and not completing the investigations and adjudication of clearances. Because of these deficiencies, the ATF has not ensured that prohibited persons are denied access to explosives. The ATF did not request FBI background checks on all employees of license applicants. We compared FBI NICS data with ATF FLS data to determine whether the ATF had requested background checks on all Employee Possessors. We found that at least 59 of the 683 individuals in our sample (9 percent) were not listed in the FBI’s records as having had a background check. Of those 59, the ATF’s FLS records indicated that 34 were in a pending status and 25 had been cleared to access explosives. The ATF frequently failed to make final determinations on employee clearance status based on FBI background checks and other information sources. Once the FBI has completed background checks on Employee Possessors, the ATF’s National Licensing Center (NLC) retrieves the results and completes the adjudication process to determine whether Employee Possessors should have access to explosives.6 Until the adjudications are completed, cases are categorized as “pending” in the NLC’s system. As of September 2004, the ATF reported that 25,181 of the 56,589 Employee Possessor records (45 percent) in the NLC’s system were “pending.” Because Employee Possessors may have multiple records in the FLS, we examined a sample of 683 individual Employee Possessor records.7 We found that 31 percent (211 of 683) of the Employee Possessors had no adjudication result entered in any of their FLS records, indicating that the ATF had not made a final determination as to the clearance status of those individuals. These Employee Possessors’ clearances had remained in a “pending” status for an average of 299 days. After being presented with the OIG’s analysis of the large number of “pending” cases in November 2004, the Chief of the NLC termed the problem “a major weakness” in the explosives licensing process and began an initiative to determine the full magnitude of the discrepancy. The NLC selected an initial non-statistical sample of 52 names of individuals identified by the FBI as possible prohibited persons, and checked their clearance status in the ATF’s FLS. The NLC found major discrepancies between the ATF’s and FBI’s records: 26 were listed in the FLS as being “denied” access to explosives, 20 were listed as “pending,” 4 were listed as cleared, 1 was listed as “denied” in 1 FLS record and “pending” in another record, and 1 did not appear in FLS at all. Upon reviewing these results, the NLC could not explain the discrepancies and, therefore, began reviewing a larger sample of FBI “denied” individuals. The ATF did not complete adjudications for individuals identified by the FBI as possible prohibited persons. According to ATF data, as of August 2004, only 502 Employee Possessor applicants had been denied the authority to possess explosives. However, the FBI had actually identified 1,157 possible prohibited persons among the Employee Possessors submitted by the ATF. The other 655 individuals – over half of the possible prohibited persons identified by the FBI – continue to have the authority to possess explosives because their background checks remained in a “pending” status. Our research found that some of these individuals had significant criminal records, including, for example: A convicted felon currently serving a 3-year probation sentence for illegally leaving a “halfway house” prior to being formally discharged. An individual who had been arrested over 20 times and who had at least three felony convictions (two for damaging property and one for auto theft) since 1992. Since the FBI background check was conducted, the individual began serving a 33-month sentence with the Arizona Department of Corrections as a result of his latest felony theft conviction. Because the ATF had not denied authorization to possess explosives to these individuals but continued to show them as pending in FLS, they continued to have ATF authorization to access explosives for as long as 14 months after being identified as a possibly prohibited person by the FBI. The ATF does not consistently complete the background check process for individuals with inconclusive NICS checks. When the NICS check identifies a possible prohibiting factor in an individual’s background that the FBI cannot confirm (e.g., due to unavailability of court records), the case is referred back to the ATF for completion of the investigation. The ATF’s procedures require that the case be reviewed and, if necessary, assigned to the appropriate ATF Field Division (based on the location of the individual) to determine whether the individual should be prohibited from possessing explosives. We found that the ATF had not consistently followed up and completed these cases. According to the ATF data, 297 individuals for whom the FBI could not complete background checks to confirm prohibiting factors remained in pending status and continued to have the authority to possess explosives. On average, the background checks for these individuals had been pending at the ATF for 363 days. According to ATF officials, as of January 2005 none of the 297 cases had yet been referred to an ATF field office for investigation. The ATF requested background checks on individuals who did not appear in the ATF’s licensing database. As part of our review to determine whether the ATF requested background checks on employees of explosives license applicants, we reviewed and compared ATF and FBI records. In the course of that review, we found instances in which the NLC’s NICS user identification number had been used to conduct background checks on persons who did not appear as Employee Possessor applicants in FLS. In response to our inquiries, the FBI provided us a total of 893 records of Employee Possessor background checks. Of those, we found that the individuals on whom 21 of the 893 background checks (2 percent) were conducted could not be found in any of the ATF’s FLS records. This could have occurred because the records were never entered into the FLS by the NLC, because an NLC employee misused their access to check individuals not involved with explosives, or because the NLC’s on-line access (through a digital certificate issued by the FBI) has been compromised. The NICS system is intended only for legitimate uses, including background checks of explosives license applicants and their employees. If these checks were not initiated on explosives license applicants or their employees, it would be an abuse of the NICS system. At the least, the discrepancy indicates that records on Employee Possessors are missing from FLS. Many explosives licensees have not reported hiring any new Employee Possessors. The SEA requires that explosives licensees report all new Employee Possessors to the ATF within 30 days of their being hired so that the ATF can conduct the required background checks. Under the ATF procedures, Employers submitting updated personnel rosters are to be provided with an amended “Notice of Clearance” to inform the employer of the results of the background checks. However, according to the ATF, as of February 11, 2005, it had issued only 920 amended Notices of Clearance to the more than 9,500 employers that it has issued licenses to since implementation of the SEA. The limited number of amended Notices of Clearances issued by the ATF indicated that few explosives licensees have reported new employees to the ATF. Further, we found that some of the 920 amended Notices of Clearance were issued solely to correct mailing address errors while some of the Notices were duplicates. Therefore, we estimated that the number of actual amended Notices of Clearance issued in response to reports of new employees was, at most, about 700. This indicates that less than 8 percent of the 9,510 explosives licensees covered by the SEA had reported any new hires to the ATF between May 2003 and January 2005. Moreover, we examined records related to the 50 licensees with the most reported Employee Possessors and found that 24 of the licensees had not reported any new Employee Possessors to the ATF. These licensees employed a total of 13,380 Employee Possessors, according to their original applications. The lack of any reports of new Employee Possessors indicates that many companies were not notifying the ATF of personnel changes or that NLC Examiners were not issuing amended Notices of Clearance. We spoke with Examiners who confirmed that they were not receiving updated personnel rosters from companies. If employers fail to report new employees, potentially prohibited persons could have access to explosives until the next renewal or compliance inspection, which may not occur for up to three years. ATF information systems are ineffective for managing the explosives licensing functions mandated by the SEA. The deficiencies noted above occurred, in part, because t he ATF’s FLS contains significant structural deficiencies that limit its utility for monitoring the licensing process and for providing ATF management with information on critical aspects of licensing operations. We determined that because of structural deficiencies, the system cannot be used to ensure that FBI background checks are conducted on all Employee Possessor applicants during the licensing process and cannot be used to properly manage and report on the clearance status of employees of explosives licensees. In addition to structural deficiencies, we found numerous instances of inaccurate, incomplete, and missing data in the FLS database. Combined, these deficiencies prevent timely and effective management of some of the most basic activities related to the ATF’s explosives oversight responsibilities. The ATF does not timely adjudicate requests from individuals seeking reconsideration of prohibited person status. Individuals prohibited from possessing explosives can apply to the ATF’s Explosives Relief of Disabilities (ROD) Section for “relief” from federal regulations (i.e., an exception that will allow them to possess explosives notwithstanding the prohibiting factors). Although the ATF has not completed regulations to govern the adjudication of relief applications, an ATF draft order states that relief applications should be adjudicated within 74 days. As of September 1, 2004, 453 individuals had applied for relief, of whom 299 (66 percent) had been adjudicated by the ATF. We found that the ATF took, on average, more than 121 days to adjudicate those cases. Delays in adjudicating relief applications are problematic for individuals who work in the explosives industry, as well as their employers. For example, on 13 occasions, ATF Field Divisions took more than six months to process an appeal and grant relief to individuals who applied for ROD. Inadequate training for ATF Inspectors has resulted in a lack of explosives product knowledge and inconsistent regulatory enforcement. After the SEA was enacted, the ATF expanded its Advanced Explosives Training Course for Inspectors from seven to ten days and enhanced the training to include more explosives product identification. The ATF told us that it intended to have all Inspectors attend the enhanced training, including 247 Inspectors who took the course before it was revised. However, the ATF plans to conduct only three classes per year, with 30 Inspectors in each class. At that rate, it will take seven years before all ATF Inspectors have attended the revised course. It will take at least three years to send those ATF Inspectors who have never attended Advanced Explosives Training to the course. Inspectors and industry members we spoke with stated that the Inspectors need better training. For example, one Inspector told us that she learns about new explosives products from licensees, a comment that was mirrored by several industry representatives who told us that they do not feel Inspectors are adequately trained to inspect various types of explosives. ATF officials, Inspectors, and industry members also cited problems with the consistency of Inspectors’ interpretations of ATF regulations that they attributed to the lack of Inspector training. For example, one licensee that operates nationwide stated that because ATF Inspectors conduct inspections and interpret regulations differently at various locations, he cannot develop a consistent corporate policy to comply with ATF regulations. Another industry member complained that an ATF Inspector cited his company for storing explosives too close to an “inhabited building” (a garage), although prior Inspectors over almost 20 years had never categorized the structure as an “inhabited building.” Whether the change in the category was correct (either because the latest Inspector noted changed circumstances or the prior Inspectors had been mistaken), the licensee told us that the reasons for the new determination had not been made clear to him. According to ATF Inspectors we spoke with, calculating the quantities of explosives allowed in storage magazines was the issue that most frequently caused them difficulty when conducting explosives inspections. ATF inspection procedures are inadequate to ensure that prohibited persons are identified during compliance inspections. During our review, we determined that ATF procedures are not adequate to ensure that Inspectors check for Employee Possessors who may have become prohibited since their initial ATF background check. For example, Employee Possessors may have been convicted of a felony or dishonorably discharged from the military since their initial background checks. Inspectors are instructed to conduct “random” background checks on Employee Possessors during compliance inspections, but we found that the ATF work plan does not specify how the random sample is to be selected or establish a minimum number of checks to be conducted. Further, the compliance inspection work plan does not require that Inspectors query NICS to conduct the rechecks. Instead, Inspectors are instructed to conduct the rechecks using the Treasury Enforcement Communications System and the National Crime Information Center (NCIC) systems. However, these systems are not as comprehensive as the NICS database queried by NLC personnel to conduct the original background checks.8 At the time of our review, the ATF had not determined whether to conduct NICS background checks on all Employee Possessors when explosives licenses or permits are renewed or whether to require Employee Possessors to submit updated application renewal forms. If the ATF chooses not to recheck all Employee Possessors during renewal inspections, but uses a random sample approach as with compliance inspections, some Employee Possessors may never be rechecked. The ATF National Laboratory has made little progress in implementing the provisions of the SEA that authorized the collection and cataloging of samples of explosives. We found that the ATF National Laboratory had only recently developed a systematic approach to collect, analyze, and catalog samples of explosives. The SEA granted the ATF the authority to collect samples of explosives and ammonium nitrate from manufacturers and importers. The samples were to be used to create libraries of information to support investigations of explosives incidents. During a June 2002 congressional hearing, the Acting ATF Director testified that a library of explosives information “is essential to ATF’s ability to prevent and solve bombings and to trace explosive materials used in terrorist activities and other violent crimes by matching residue with the manufacturers’ samples.”9 However, during our review, we determined that the ATF had only used its authority to collect explosives samples one time – to collect a model rocket motor. The ATF had not collected any samples of ammonium nitrate. Moreover, the National Laboratory had only recently developed a systematic approach for collecting, analyzing, and cataloging samples of explosives. Subsequent to the completion of our field work, in October 2004, the National Laboratory began the planning process for constructing an explosives storage facility, the first step toward enabling the laboratory to collect and analyze explosives. Planning for an electronic database to house explosives information collected by the laboratory began in late August 2004. According to the National Laboratory’s operating plan, the ATF plans to formalize protocols for gathering information from explosives manufacturers by June 2005 and, by July 2005, develop a prototype of the explosives database. ATF efforts to establish a NationalExplosivesLicensingCenter. In the ATF’s fiscal year 2004 appropriation, Congress authorized the ATF to create the National Explosives Licensing Center (NELC), stating: “The conference agreement includes … $4,000,000 to upgrade databases and systems, space alterations, and other costs related to creating the National Explosives Licensing Center … at the Bureau of Alcohol, Tobacco, Firearms and Explosives National Tracing Center.”10 The ATF selected a Chief for the NELC in October 2003 and in July 2004 the NLC began transferring its explosives licensing operations for new applications – not renewal applications – to the NELC on a state-by-state basis. As of October 2004, the NLC had transferred these operations for 32 states. In September 2004, the Chief of the NELC told us that he expects the NELC to be fully operational by August 2005. However, as of September 2004, the ATF had not developed any detailed plans, timelines, or reports for accomplishing the transfer of the remaining explosives licensing operations to the NELC. In January 2005, ATF Headquarters officials stated that the NELC was developing detailed plans for the full transfer of licensing operations, but did not provide a copy for our review. We discussed issues related to the establishment of the NELC with management staff at the NLC because they carry out firearms licensing functions within the ATF and have been handling explosives licensing functions pending the establishment of the NELC. They stated that, in their opinion, the NELC is unprepared to handle issues beyond basic licensing. Additional issues reviewed by the OIG. In conducting this review, we identified several additional issues related to the regulation and safeguarding of explosives in the United States that, while not addressed in the SEA, nevertheless are relevant to public safety. They include the following: The lack of ATF authority to regulate ammonium nitrate and some commonly used explosives, and The lack of ATF authority to inspect all government-owned explosives storage facilities. With regard to government-owned explosives storage facilities, federal, state, and local government agencies are exempt from ATF licensing and permitting requirements, although most are required by law to store explosives in accordance with federal regulations. Therefore, according to ATF Headquarters officials, the ATF only inspects government-owned explosives storage facilities when the owners of these magazines invite the ATF to perform inspections. CONCLUSIONS AND RECOMMENDATIONS We believe that immediate action is required to correct the critical deficiencies in the ATF’s implementation of the SEA identified in this report to ensure that prohibited persons do not have access to explosives. Because of the ATF’s inability to ensure that background checks on all Employee Possessor applicants were conducted, and its failure to complete the background check process on others, at least 655 possible prohibited persons are currently allowed access to explosives. This represents a significant risk to public safety. The ATF also must take steps to improve the consistency and effectiveness of its oversight activities so that explosives workers who may have become prohibited persons are identified during ATF inspections. In addition, ATF Inspectors must be adequately trained in explosives products and operations to carry out their oversight of the explosives industry effectively and consistently. The ATF also needs to direct the completion of plans for establishing an explosives licensing center and to implement a process for collecting and cataloging explosives at the ATF National Laboratory to assist national and local law enforcement during investigations of the illegal use of explosives. In our report, we make 10 recommendations to help the ATF improve the implementation of the Safe Explosives Act and more effectively regulate explosives within the United States: Implement procedures to ensure that all Employee Possessor applicants receive a thorough background check. Establish milestones and controls to ensure that Employee Possessor applicants do not remain in a “pending” status in the FLS for extended periods. As an immediate action, NLC management should regularly generate an aging report for pending cases, setting priorities for resolving those cases that have been in a pending status for more than 45 days. Implement procedures to ensure the integrity, completeness, and accuracy of the Employee Possessor information in the FLS. To correct the current data problems, the ATF should conduct a 100 percent cross-match of the names of individuals issued licenses and permits by the ATF with the names of individuals on whom the FBI conducted NICS checks, and then: — Conduct background checks on any individuals contained in the ATF licensing system but not confirmed as having been checked by the FBI. — Immediately recheck the license status of all individuals determined by the FBI to be prohibited persons and ensure those individuals are denied access to explosives. — For any individual that the FBI has recorded a NICS background check under the NLC’s NICS user identification number, but for whom the ATF has no record in its licensing system, determine whether the person is involved in the explosives industry. If the person is, enter the individual into the ATF’s licensing system, and, if not, conduct an investigation to determine who may have performed the background check and why. Implement quality control procedures, data entry protocols, and system modifications to ensure FLS data accuracy, including: — Modification of the FLS to ensure that an Employee Possessor has only one status, system-wide, no matter how many licenses or permits are associated with the individual. — Modification of the FLS to prevent the entry of illogical or incomplete data. Use existing NLC Employee Possessor information to provide a monthly listing to each Field Division of the licensees in their jurisdiction, the number of Employee Possessors, and the date the company last reported an Employee Possessor to determine the most egregious cases of licensees who have failed to notify the ATF of new hires. Take action to ensure that there is no unauthorized or inappropriate use of the FBI NICS E-Check system. As an immediate action, the ATF should cancel the NLC’s NICS user identification number and assign unique user identification numbers to each individual responsible for conducting the checks. Improve the consistency of regulatory determinations by designating a single point of contact at ATF Headquarters for Inspectors and explosives industry members. The point of contact should maintain a history of regulatory inquiries and post frequently requested information on the ATF’s website. Examine alternatives for speeding the delivery of the ATF’s Advanced Explosives Training course to all Inspectors, and develop a curriculum to build explosives expertise within the ATF’s Inspector workforce. Develop a detailed timeline for accomplishing the actions necessary to complete the implementation the National Explosives Licensing Center in Martinsburg, West Virginia, including the implementation of changes to the licensing and background check processes, the adjudication process for Employee Possessors, and the data systems that will support these processes. Develop comprehensive plans, funding requests, industry notices, proposed regulations, and other necessary documents to implement the authority granted under the SEA to collect and catalog samples of explosives at the ATF National Laboratory. Footnotes P.L. 107-296, Title XI, Subtitle C of the Homeland Security Act of 2002. The ATF issues 23 different types of licenses and permits governing the manufacture, importation, sale, and use of explosives. Before the SEA was enacted, proprietors, owners, and corporate officers – generally referred to as “Responsible Persons” – were required to submit to background checks before being granted a license or a permit. The new prohibited persons categories also apply to these individuals. This partnership was established with the approval of the Department of Justice, Office of Legal Policy, which wrote that “… only a check conducted [by the FBI] would reveal prohibiting information regarding mental health prohibitions, dishonorable discharges, persons who have renounced their citizenship, and illegal aliens.” The SEA did not specifically mandate that the ATF establish a National Explosives Licensing Center. The authority for the National Explosive Licensing Center is contained in a report by the House Appropriations Committee (House Report 108-401). To retrieve the results of an FBI background check, employees at the National Licensing Center must log into an FBI database and input the results of the check into the ATF’s licensing database. The sample size was actually 1,000 FLS records, which represented 683 individual Employee Possessors. In addition to NCIC information, the NICS database contains information on individuals dishonorably discharged by the Department of Defense, individuals adjudicated mentally defective, and individuals who have renounced their United States citizenship. Testimony before the House of the Representatives, Committee on the Judiciary, Subcommittee on Crime, Terrorism, and Homeland Security, hearing on  H.R. 4864, the Anti-Terrorism Explosives Act of 2002, June 11, 2002. House Report 108-401.