FORTUNE — In the annals of impossible assignments, Dave Voth’s ranked high. In 2009 the federal Bureau of Alcohol, Tobacco, Firearms and Explosives promoted Voth to lead Phoenix Group VII, one of seven new ATF groups along the Southwest border tasked with stopping guns from being trafficked into Mexico’s vicious drug war.
Some call it the “parade of ants”; others the “river of iron.” The Mexican government has estimated that 2,000 weapons are smuggled daily from the U.S. into Mexico. The ATF is hobbled in its effort to stop this flow. No federal statute outlaws firearms trafficking, so agents must build cases using a patchwork of often toothless laws. For six years, due to Beltway politics, the bureau has gone without permanent leadership, neutered in its fight for funding and authority. The National Rifle Association has so successfully opposed a comprehensive electronic database of gun sales that the ATF’s congressional appropriation explicitly prohibits establishing one.
Voth, 39, was a good choice for a Sisyphean task. Strapping and sandy-haired, the former Marine is cool-headed and punctilious to a fault. In 2009 the ATF named him outstanding law-enforcement employee of the year for dismantling two violent street gangs in Minneapolis. He was the “hardest working federal agent I’ve come across,” says John Biederman, a sergeant with the Minneapolis Police Department. But as Voth left to become the group supervisor of Phoenix Group VII, a friend warned him: “You’re destined to fail.”
Ten weeks later, an ATF agent named John Dodson, whom Voth had supervised, made startling allegations on the CBS Evening News. He charged that his supervisors had intentionally allowed American firearms to be trafficked—a tactic known as “walking guns”—to Mexican drug cartels. Dodson claimed that supervisors repeatedly ordered him not to seize weapons because they wanted to track the guns into the hands of criminal ringleaders. The program showed internal e-mails from Voth, which purportedly revealed agents locked in a dispute over the deadly strategy. The guns permitted to flow to criminals, the program charged, played a role in Terry’s death.
After the CBS broadcast, Fast and Furious erupted as a major scandal for the Obama administration. The story has become a fixture on Fox News and the subject of numerous reports in media outlets from CNN to the New York Times. The furor has prompted repeated congressional hearings—with U.S. Attorney General Eric Holder testifying multiple times—dueling reports from congressional committees, and an ongoing investigation by the Justice Department’s inspector general. It has led to the resignations of the acting ATF chief, the U.S. Attorney in Arizona, and his chief criminal prosecutor.
Conservatives have pummeled the Obama administration, and especially Holder, for more than a year. “Who authorized this program that was sofelony stupid that it got people killed?” Rep. Darrell Issa (R-Calif.), chairman of the House Committee on Oversight and Government Reform, demanded to know in a hearing in June 2011. He has charged the Justice Department, which oversees the ATF, with having “blood on their hands.” Issa and more than 100 other Republican members of Congress have demanded Holder’s resignation.
The conflict has escalated dramatically in the past ten days. On June 20, in a day of political brinkmanship, Issa’s committee voted along party lines, 23 to 17, to hold Holder in contempt of Congress for allegedly failing to turn over certain subpoenaed documents, which the Justice Department contended could not be released because they related to ongoing criminal investigations. The vote came hours after President Obama asserted executive privilege to block the release of the documents. Holder now faces a vote by the full House of Representatives this week on the contempt motion (though negotiations over the documents continue). Assuming a vote occurs, it will be the first against an attorney general in U.S. history.
As political pressure has mounted, ATF and Justice Department officials have reversed themselves. After initially supporting Group VII agents and denying the allegations, they have since agreed that the ATF purposefully chose not to interdict guns it lawfully could have seized. Holder testified in December that “the use of this misguided tactic is inexcusable, and it must never happen again.”
There’s the rub.
Quite simply, there’s a fundamental misconception at the heart of the Fast and Furious scandal. Nobody disputes that suspected straw purchasers under surveillance by the ATF repeatedly bought guns that eventually fell into criminal hands. Issa and others charge that the ATF intentionally allowed guns to walk as an operational tactic. But five law-enforcement agents directly involved in Fast and Furious tell Fortune that the ATF had no such tactic. They insist they never purposefully allowed guns to be illegally trafficked. Just the opposite: They say they seized weapons whenever they could but were hamstrung by prosecutors and weak laws, which stymied them at every turn.
How Fast and Furious reached the headlines is a strange and unsettling saga, one that reveals a lot about politics and media today. It’s a story that starts with a grudge, specifically Dodson’s anger at Voth. After the terrible murder of agent Terry, Dodson made complaints that were then amplified, first by right-wing bloggers, then by CBS. Rep. Issa and other politicians then seized those elements to score points against the Obama administration, which, for its part, has capitulated in an apparent effort to avoid a rhetorical battle over gun control in the run-up to the presidential election. (A Justice Department spokesperson denies this and asserts that the department is not drawing conclusions until the inspector general’s report is submitted.)
The ATF is a bureau of judgment calls. Drug enforcement agents can confiscate cocaine and arrest anyone in possession of it. But ATF agents must distinguish constitutionally protected legal guns from illegal ones, with the NRA and other Second Amendment activists watching for missteps.
U.S. Attorney General Eric Holder
Critics have depicted the ATF as “jackbooted government thugs” trampling on the rights of law-abiding gun owners. From the deadly standoff with the Branch Davidian [BA1] cult in Waco, Texas, in 1993 to allegations that ATF agents illegally seized weapons from suspected straw purchasers at a Richmond gun show in 2005, these scandals have helped cement the bureau’s reputation in some quarters for law-enforcement overreach.
In part because of these notorious cases, the bureau has operated in a self-protective crouch. It has stuck to small single-defendant cases to the detriment of its effort to combat gun trafficking, the Justice Department’s inspector general found in a review of ATF cases from 2007 to 2009. To refocus its efforts, the ATF established Group VII and the other Southwest border units to build big, multi-defendant conspiracy cases and target the leaders of the trafficking operations.
Meanwhile, a crucial part of the Fast and Furious scandal—an unusual alliance that would prod politicians and spread word of the failure to stop guns from making their way to Mexican drug cartels—was waiting in the wings. Little more than a week after Terry’s murder, a small item about the possible connection between his death and the Fast and Furious case appeared on a website, CleanUpATF.org. The site was the work of a disgruntled ATF agent-turned-whistleblower, Vince Cefalu, who is suing the bureau for alleged mistreatment in an unrelated case. His website has served as a clearinghouse for grievances and a magnet for other ATF whistleblowers.
It had also attracted gun-rights activists loosely organized around a blog called the Sipsey Street Irregulars, run by a former militia member, Mike Vanderboegh, who has advocated armed insurrection against the U.S. government. It was an incendiary combination: the disgruntledATF agents wanted to punish and reform the bureau; the gun-rights activists wanted to disable it. After the item about Terry appeared, the bloggers funneled the allegations through a “desert telegraph” of sorts to Republican lawmakers, who began asking questions.
Today, with Attorney General Holder now squarely in the cross hairs of Congress, Democrats and Republicans are accusing each other of political machinations. Rep. Elijah Cummings, a Maryland Democrat and ranking member of the oversight committee, has accused Issa of targeting Holder as part of an “election-year witch hunt.” Issa has alleged on Fox News that Fast and Furious is part of a liberal conspiracy to restrict gun rights: “Very clearly, [the ATF] made a crisis and they are using this crisis to somehow take away or limit people’s Second Amendment rights.” (Issa has a personal history on this issue: In 1972, at age 19, he was arrested for having a concealed, loaded .25-caliber automatic in his car; he ultimately pleaded guilty to possession of an unregistered gun.)
Issa’s claim that the ATF is using the Fast and Furious scandal to limit gun rights seems, to put it charitably, far-fetched. Meanwhile, Issa and other lawmakers say they want ATF to stanch the deadly tide of guns, widely implicated in the killing of 47,000 Mexicans in the drug-war violence of the past five years. But the public bludgeoning of the ATF has had the opposite effect. From 2010, when Congress began investigating, to 2011, gun seizures by Group VII and the ATF’s three other groups in Phoenix dropped by more than 90%.