Customs officials have conceded a huge haul of illegally imported handguns in Sydney has exposed vulnerabilities in their systems.

Police pounced on the syndicate on Tuesday and arrested four people in Sydney, including the franchisee of the Sylvania Waters Post Office.

They believe the ring has imported between 160 and 220 Glock pistols by air freight since last year, including some linked to recent Sydney shootings.

Detectives say the Austrian-made guns were sold to a firearms dealership in Germany and then illegally brought to Australia.

German police also arrested a man on Tuesday at the dealership in the city of Remscheid, in the country's west near Dusseldorf.

They also seized documents and parcels.

He has not been charged.

Customs and Border Protection Service chief executive Michael Carmody says the case shows procedures need to be changed.

"Last year we detected about 2,000 illegal handguns, accessories and the like. I think the issue with this is that increasingly the methodologies are sophisticated," he said.

"It's only when we can get details of the business models, some intelligence on the methodologies, that we can actually guarantee interception.

"They (the guns) were ordered in an apparently legal and appropriate way and made their way through a number of points overseas, obviously with mislabelling."

'Reign of terror'

New South Wales Premier Barry O'Farrell says the case shows the system has failed.

"It's time the Federal Government stopped burying its head in the sand about the porous nature of our borders and our customs service," Mr O'Farrell told State Parliament.

Federal Opposition Leader Tony Abbott blamed the Federal Government's border protection policies for what he described as a "reign of terror"' on Sydney's streets.

Mr Abbott interrupted Question Time to accuse the Government of not doing enough to stop illegal guns hitting the streets.

"As those shots ring out, the people of Sydney, they think of the crime gangs, they think of the police, and Mr Speaker, now they should also think of this Prime Minister whose failures on border protection have materially contributed to this particular social disaster," he said.

But Home Affairs Minister Jason Clare says stopping the importation of illegal guns is his top priority.

"What is happening in Sydney is extremely serious," he said.

"There is a risk where there are drive-by shootings, people shooting at homes across western Sydney, that someone will get hurt. There is a risk that families could be shot and killed."

Andrew Botros being arrested at Sylvania Waters Post Office yesterday. ( NSW Police )

Police say they have so far traced one of the imported handguns to a shooting at Wiley Park in January and another to an organised crime figure.

Acting Assistant Commissioner Mal Lanyon says gun smuggling is feeding Sydney's wave of gun crime.

"I think there's irrefutable evidence that a number of the firearms that have been used by organised crime groups and individuals that engage in organised crime are imported," he said.

"Handguns are not manufactured in Australia and it's very clear that handguns are the preferred choice of organised crime because of their concealability, because of their transportability, their ability to be passed around other criminals."

Sylvania Waters Post Office franchisee Andrew Botros faced Sutherland Local Court on Wednesday on charges including supplying firearms.

The 30-year-old did not apply for bail and it was formally refused.

Bail refused

Court documents show Botros is also accused of defrauding Australia Post.

The police documents allege he stole three bags of mail and defrauded Australia Post of more than $37,000.

Another alleged ringleader, 27-year-old telecommunications technician Khoder El Ali, was also refused bail when he faced Burwood Local Court.

A third man, Ahmed Karnib, 21, also had his bail application refused.

Police allege the freight-forwarding agent signed for 10 of the 20 consignments received and also communicated in code with his two co-accused about a package being tampered with.

Outside court, Karnib's lawyer Elias Tabchouri maintained his client was an innocent conduit with no idea what was in the packages.

"My client is not allowed to open these packages, he's authorised to sign on behalf of his client and in fact what he did was nothing other than what is usual common practice," he said.

"One can't even say he was naive at best - if he was to open the packages he would get in trouble."

Nancy Yacco, 28, was also arrested during Tuesday's operation and charged with the lesser offence of gun possession.

She was refused bail, with the case to return to court tomorrow.