It leaks directly at the bottom of the seal not from the sides. that's why I want to machine the aluminum seal holder to shorten it and tighten the seal clearance.
Your assumption that you don’t have enough crush on the seal is probably wrong.
The most likely scenario is that you have too much crush on the seal, and that deforms the seal and makes it leak.
You need the seal to be between .005-.010 proud of the block and seal retainer.
The combined height of the two ends that go together should be no more than .015 between the two ends.
As long as you have the seal ends between .015 total it will seal. Even at .005 total they will seal.
If you get more than .015 it will deform the seal and it will leak.
That .015 isn’t hard and fast. You have a bit of wiggle room. If I end up with more than .015 between the ends I machine the seal off to get between .010-.015 crush between the two halves.
If it is .000 it’s sketchy. At .005 total I know they will seal.