Gun shop owners and whistle-blowing agents with the U.S. Bureau of Alcohol, Tobacco and Firearms (ATF) recently announced their concerns with a controversial government program which allows the smuggling of U.S. weapons across the nation’s southern border. In response, the Obama administration is now denying having any knowledge of the operation.

Dubbed “Project Gunrunner,” the ATF says the mission is designed to “deny firearms, the ‘tools of the trade,’ to criminal organizations in Mexico and along the border.” But the operation‘s critics say it’s doing exactly the opposite, allegedly facilitating the delivery of thousands of guns into criminal hands.

CBS News broke the initial story last month.

In late 2009, ATF was alerted to suspicious buys at seven gun shops in the Phoenix area. Suspicious because the buyers paid cash, sometimes brought in paper bags. And they purchased classic “weapons of choice” used by Mexican drug traffickers – semi-automatic versions of military type rifles and pistols.  Sources tell CBS News several gun shops wanted to stop the questionable sales, but ATF encouraged them to continue.

So-called “suspicious buyers” purchasing huge quantities of weapons for “personal use” were logged into an ATF suspect database over the following year.  Most all of the weapons were allowed to “walk” so ATF could gather intelligence and see where the guns eventually ended up.  Unfortunately for many, the guns often ended up at crime scenes along with dead bodies.

One agent called the strategy “insane.” Another said: “We were fully aware the guns would probably be moved across the border to drug cartels where they could be used to kill.”

On the phone, one Project Gunrunner source (who didn’t want to be identified) told us just how many guns flooded the black market under ATF’s watchful eye. “The numbers are over 2,500 on that case by the way. That’s how many guns were sold – including some 50-calibers they let walk.”

50-caliber weapons are fearsome. For months, ATF agents followed 50-caliber Barrett rifles and other guns believed headed for the Mexican border, but were ordered to let them go. One distraught agent was often overheard on ATF radios begging and pleading to be allowed to intercept transports. The answer: “Negative. Stand down.”

CBS News has been told at least 11 ATF agents and senior managers voiced fierce opposition to the strategy. “It got ugly…” said one. There was “screaming and yelling” says another. A third warned: “this is crazy, somebody is gonna [get] killed.”

Sources within the ATF told CBS News that dozens of tracked weapons turned up in shootouts with government agents.  One unidentified agent reportedly argued with his superior over the controversial and dangerous policy asking, “Are you prepared to go to the funeral of a federal officer killed with one of these guns?”  Another agent noted that every time there was a report of shooting near the border, “we would all hold our breath, hoping it wasn‘t one of ’our’ guns.”

When U.S. Border Patrol Agent Brian Terry was gunned down last December, serial numbers on two assault rifles found at the scene matched weapons the ATF had allowed a “suspicious buyer” to purchase.

A Washington Post investigation last December linked 115 firearms confiscated over the past two years by Mexican authorities to Carter’s Country gun outlets. But the shops’ attorney says the sales were made at the express insistence of the ATF. As a result, a federal grand jury reportedly launched an investigation of the chain.

“Let me tell you something about Carter’s Country. They have been cooperating with ATF from the get go,” says attorney Dick Deguerin who represents Carter’s Country owner, Bill Carter. “They were told to go through with what they considered to be questionable sales. They were told to go through with sales of three or more assault rifles at the same time or five or more 9 millimeter guns at the same time or a young Hispanic male paying in cash. It’s all profiling, but they went through with it… They reported them promptly, either while the transaction was going on or soon thereafter. They did this for months and months and months. Went through with the sales because the ATF told them to go through with the sales,” he added.

According to Deguerin, the ATF asked Carter’s Country employees to follow some customers into the parking lot after completed sales to record license plate numbers. “If the ATF had used the information that Carter’s Country developed for them they could have stopped these guns from going across the border,” he insisted.

A spokesperson for ATF would neither confirm nor deny the co-operation agreement with Carter’s Country, but told the local Houston Fox affiliate, “I don’t think we would issue a blanket directive.” In the meantime, Deguerin says his client — the gun shop owners — are feeling unjustly vilified.

Now under increasing fire for the controversial operation, the Obama administration is denying having authorized the mission. During an interview with Univision this week, President Obama said neither he nor Attorney General Eric Holder knew of the operation, now called “Operation Fast and Furious.”

Responding to reports that the Mexican government has complained that it told about the U.S. operation that allowed guns to illegally cross the international border, Obama said he didn’t inform Mexican President Felipe Calderon because he — the president of the United States — wasn’t informed either.

Ditching the old presidential moniker “The Buck Stops Here,” Obama responded that the U.S. government  “a pretty big government” with “a lot of moving parts”:

Although Attorney General Holder denies having authorized the controversial program, the Inspector General‘s investigation into the program began after the smuggled weapons were found at the scene of Agent Brian Terry’s murder. Since then, at least one gun smuggled from the U.S. was used to kill Immigration and Customs Enforcement (ICE) Agent Jamie Zapata, but it has not been determined if it was part of “Fast and Furious.”

“Letting guns ‘walk’ is not something that is acceptable,” Holder told a Senate Appropriations Subcommittee hearing this week. “Guns are different than drugs or money when we are trying to follow their trail. That is not acceptable.”

The death of Agent Zapata also raised questions about the safety of American agents operating south of the border. According to reports at the time, Zapata and his colleague were pinned down by known drug smugglers, but were unable to retaliate because U.S. agents are not allowed to carry firearms on Mexican soil. If the ATF is indeed allowing Americans guns to be smuggled into Mexico, shouldn’t American agents at least be armed?

Former Arizona governor and acting Homeland Security Secretary Janet Napolitano — who has previously insisted America’s southern border is more secure than ever — has also denied prior knowledge of the “Fast and Furious” operation:

The Obama administration has previously blamed U.S. guns for Mexican drug violence and called on Congress to enact new more strict gun control measures. But with reports of ATF agents encouraging American gun retailers to be reckless with their sales, gun advocates worry politicians in Washington may be purposefully inflating the threat of cross-border gun violence to justify new gun regulations.

On Friday, NRA president Wayne LaPierre called into the Glenn Beck radio program to voice his organization’s concerns with the “Fast and Furious” operation and its potential impact on Americans’ right to bear arms:

In contrast, the George Soros-funded Center for American Progress (CAP) is claiming the NRA is using the “Fast and Furious” operation to discredit the ATF:

Congressional calls for investigation into “gun-runner“ operations like ”Fast and Furious” have gone unanswered by the Obama administration.

Sen. Chuck Grassley, R-Iowa, initiated an investigation into the operations with a letter to the ATF dated Jan. 27, 2011. In it, Grassley notes his concerns about potential “careless” negligence in implementing the strategy.

Grassley then addressed a follow-up letter to Attorney General Holder dated March 3. Despite the DOJ’s insistence that ATF would never “knowingly allow weapons to fall into the hands of criminals, or let firearms ‘walk’ in an operation,” Grassley said mounting evidence supported whistleblower allegations.

In addition, Grassley’s letter stated that ATF agents had been threatened and warned against speaking out against the policy. “If you don’t think this is fun, you’re in the wrong line of work– period!” one ATF supervisor’s email read. “This is the pinnacle of domestic U.S. law enforcement techniques. After this the toolbox is empty. Maybe the Maricopa County Jail is hiring detention officers and you can get paid $30,000 (instead of $100,000) to serve lunch to inmates all day.”

Two weeks later, the same supervisor wrote to senior Justice officials, reiterating his support for the controversial strategy, but noting that increasing levels of violence demanded more urgent action:

Our subjects purchased 359 firearms during the month of March alone, to include numerous Barrett .50 caliber rifles. I believe we are righteous in our plan to dismantle this entire organization and to rush in to arrest any one person without taking in to [sic] account the entire scope of the conspiracy would be ill advised to the overall good of the mission.

“Dismantling the Mexican drug cartels is a worthy goal. However, asking cooperating gun dealers to arm cartels and bandits without control of the weapons or knowledge of their whereabouts is an extremely risky strategy,” Grassley wrote. “These documents establish that ATF allowed illegal firearm purchases by suspected traffickers in hopes of making a larger case against the cartels. ATF was not alone. The U.S. Attorney”s office appears to have been fully aware and engaged in endorsing the same strategy. Congress needs to get to the bottom of this.”

House Oversight and Government Reform Committee chairman Rep. Darrell Issa, R-Calif., is also reportedly pursuing answers and has assembled his own investigatory team. In a letter addressed to Kenneth Melson, acting director of the ATF, Issa urged decisive action to “assuage the public’s deep suspicions.”

“Recent media reports have raised grave questions about your department’s handling of operations involving gun trafficking in Mexico,” the letter begins. “In the aftermath of the tragic killing of Border Patrol Agent Brian Terry and Immigration and Customs Enforcement Agent Jamie Zapata, it is imperative that you act decisively to assuage the public’s deep suspicions that the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) has a policy permitting – and even encouraging – the movement of guns into Mexico by straw purchasers.”