15 June 2011 Last updated at 16:17 ET
Hundreds of US guns were bought, resold and sent to Mexican drug cartels in an Arizona sting operation while US firearms agents were ordered not to intervene, Congress has heard.
Three firearms agents said they were told to track the movement of the weaponry, but not to make any arrests. US lawmakers expressed outrage at the details of Operation Fast and Furious.
The news comes one day after a report suggested Mexican drug cartels have armed themselves with US weapons. The report suggests some 70% of firearms recovered from Mexican crime scenes in 2009 and 2010 and submitted for tracing came from the US.
On Wednesday, congressional lawmakers concluded that Fast and Furious, which was designed to track small-time gun buyers to major weapons traffickers along America's south-west border, never led to the arrest of any major traffickers.
The guns tracked by agents of the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) were reportedly used in numerous killings in Mexico.
Lawmakers on the House of Representatives Oversight Committee said they demanded answers from the Obama administration about why no arrests were made while investigators were tracking the firearms.
"We monitored as they purchased handguns, AK-47 variants and .50 caliber rifles, almost daily at times," ATF agent John Dodson told the committee. He added that though he wanted to "intervene and interdict these weapons", his supervisors told him not to make any arrests.
At a hearing prior to the panel, Senator Chuck Grassley of Iowa said "hundreds upon hundreds of weapons" destined for cartels in Mexico were purchased in gun shops in Arizona. Operation Fast and Furious was designed to track weaponry as it moved from small-time gun buyers to major traffickers, who have often avoided prosecution.
In December two US assault rifles were found at the scene of a shootout where Customs and Border Protection agent Brian Terry was killed.
"We ask that if a government official made a wrong decision that they admit their error and take responsibility for his or her actions," Robert Heyer, the deceased agent's cousin, told the panel on Wednesday.
Nearly 35,000 people have died in drug-related violence in Mexico since December 2006, and many of the killings have been carried out with guns smuggled in from the US.