Introduction

Pawnshops are heavily regulated businesses and, as such, find

themselves with local, county, state and federal statutes that they must
follow in the course of everyday business. The purpose of this manual is
to define the federal policies that are to be followed, the appropriate risk
assessments for each section, policy and procedure sections to educate
employees, and examples of documents used by the store to help follow
through with the given procedures. In the final sections of the manual,
there are copies of all of the statutes governing the business. This
manual is a living, breathing document, so it will be added to as needs
arise, whether due to an audit (internal OR external), or a change in, or
addition of, any statutes.
Changes in these statues can occur at any time, so it will be the role of
the store owner to ultimately be in charge of the changes. Any
substantive changes will require training which can occur either
corporately or individually at their discretion. There are training
verification forms in Section 8 of this manual to show that the training
actually took, place, who received it, and when it was given. Corporate
training verification forms are to remain in this manual permanently
while individual training pages may either be kept in the appropriate
employee’s files or in the manual.
Finally, it is the in the best interest of the company to have an external,
independent audit performed on an annual basis by someone who can
give solid feedback about the performance of the employees and the
policies in this manual. Any documentation from the auditor should be
kept in Section 9 of this manual as well to show federal auditors that
ongoing independent testing of these policies is taking place.
Title 31 Anti-Money Laundering
As found in U.S. Patriot Act Title 31, part 1027 section 210 which
covers rules for dealers in precious metals, precious stones, or jewels;
“Each dealer shall develop and implement a written anti-money
laundering program reasonably designed to prevent the dealer from
being used to facilitate money laundering and the financing of terrorist
activities through the purchase and sale of covered goods.”
Section 210(b) states “at a minimum, the anti-money laundering
program shall:
1. “Incorporate policies, procedures, and internal controls based
upon the dealer’s assessment of the money laundering and
terrorist financing risks associated with its line(s) of business.”
2. “Designate a compliance officer responsible for ensuring that:
(i) The anti-money laundering program is implemented
effectively;
(ii) The anti-money laundering program is updated as necessary
to reflect changes in the risk assessment…; and
(iii) Appropriate personnel are trained in accordance with
paragraph (b)(3) of this section.”
3. “Provide for ongoing education and training of appropriate
persons concerning their responsibilities under the program.”
4. “Provide for independent testing to monitor and maintain an
adequate program…”
The purpose of the act is to deter any money laundering activities. Many
of these activities are used by those engaged in small time fraud up to
and including organized crime and terrorist groups.
A “Dealer in Precious Metals” is defined as “a person engaged within
the United States as a business in the purchase and sale of covered goods
and, who, during the prior calendar or tax year:
(i)Purchased more than $50,000 in covered goods; and
(ii)Received more than $50,000 in gross proceeds from the sale of
covered goods.”
Included in the definition of “Covered Goods” are:
1. Gold, iridium, osmium, palladium, platinum, rhodium, ruthenium,
or silver, having a level of purity of 50 percent in the aggregate.
2. Precious stones as part of the finished goods that are a substance
with gem quality market-recognized beauty, rarity, and value, and
include diamond, corundum (including rubies and sapphires), beryl
(including emeralds and aquamarines), chrysoberyl, spinel, topaz,
zircon, tourmaline, garnet, crystalline, and cryptocrystalline quartz,
olivine peridot, tanzanite, jadeite jade, nephrite jade, spodumene,
feldspar, turquoise, lapis lazuli, and opal.
RISK ASSESSMENT
This store is located in the city of San Diego, California, 120 miles south
of Los Angeles and immediately adjacent to the border of Mexico, in
San Diego County with a population of approximately 1,400,000. The
population base served by the store is roughly 3,500,000 and includes
the entire San Diego-Tijuana trans-border agglomeration. The store is
located in a HIDTA (High Intensity Drug Trafficking Area) and in a
HIFCA (High Intensity Financial Crimes Area). The company has been
licensed in the state of California as a pawnbroker since May 2006 and
is an S-corp. They are in the business of pawns so focus on lending
small amounts of money for a fixed time period to a broad range of
Form 8300 Compliance
In accordance with Title 26 of the United States code, we report the following
transactions to the Internal Revenue Service via FinCEN form 8300:
1. Cash-in transactions of more than $10,000 involving a sale or pawn
redemption;
2. Cash-in transactions by the same person exceeding $10,000 in a 24-
hour period;
3. Related transactions where the principal and interest amounts paid
over a rolling 12-month period exceed $10,000 on an un-broken chain
of renewed loans;
4. Designated transactions where cash is combined with certain
negotiable instruments in amounts exceeding $10,000; and
5. Suspicious transactions that may be related to money-related crimes
or involve customers trying to avoid the $10,000 rule.

Our compliance officer is the Asst. Manager, Roland Camp. He will be in

charge of implementation of the program as well as the training of all
employees and an evaluation of the program to ensure continued compliance.
The average loan transaction in this store is around $120, so rarely will 8300
filings be necessary, however, there are exceptions involving sales and mass
redemptions which will be handled on a case-by-case basis.
There are primarily two circumstances where we would expect to see the need
to file a Form 8300. The first is a cash/designated purchase of more than
$10,000, and the other is the related transaction type specifically as it relates
to layaways or multiple pawn loans of a single customer and the payments
related to them over a rolling 12-month period. The store will track all sales
and pawn transactions (in or out) that have a dollar amount of $2,000 or more
in a 24-hour period on a worksheet in the back of this manual. This
information will be corroborated by reports from their proprietary software
program, “SuperPawn”. They will print out reports on a monthly (or more
frequent) basis and include them in the back of this section for the auditor’s
use. At least 13 months of these reports will be kept in this manual at all
times. Any transaction reaching or exceeding this amount will require the
verbal approval of the manager on duty at the time. Activity on the
spreadsheet will be stored by name, date in, date out, and dollar amount so it
will be easy for the compliance officer to check for patterns and, if deemed
necessary, a FinCEN form 8300 will be filed.
The term “cash” means the following:

• U.S. and foreign coin and currency received in any transaction; or

• A cashier’s check, money order, bank draft, or traveler’s check having

a face amount of $10,000 or less that is received in a designated
reporting transaction, or that is received in any transaction in which the
recipient knows that the instrument is being used in an attempt to avoid
the reporting of the transaction under either section 6050I or 31 U.S.C.
5331.

Cash does not include a check drawn on the payer’s own account, such as a
personal check, regardless of the amount.
As part of a new employees training they will be coached individually by the
compliance officer about the importance of the program and how to comply
with its requirements. Annually thereafter, all employees will receive a review
of the then current material. After the completion of any training, employees
will sign a document verifying they have received the training and will have
the document placed in their employee file. (See section 8 of this manual for a
copy of a training verification document).
 WHO WE SHARE PERSONAL DATA WITH

We are required by local, regional, state and federal guidelines to

share data with law enforcement agencies as requested in order to
determine whether or not items brought into our store have been
unlawfully obtained.
Pawns in California are transferrable but only the original pledgor is
allowed to redeem the pawn in this store. The store will allow
redemption by the original pledgor, a pre-defined designee, or anyone
with a signed, notarized document transferring the redemption rights.
The customer copy of the pawn ticket has the name and all
identifying information obscured. We will not divulge any other
information should a third party request it.
There are times that people are told by law enforcement to inquire as
to whether their items were brought for pawn by a family member
without their permission. As a rule, we will insist that a missing item
report is filed prior to giving any information to a family member.
The family member will already most likely know the personal data
anyway, so they are trying to determine whether or not items were
brought to our store in the first place. In many cases the person
calling may not even know where their items may be so they just start
calling all the stores in the area trying to find their items. We ask for
the name of the person they think brought items in and check our
database. If the person did bring items in, we tell the person on the
phone to get a police report and then we can help them. If the person
has not been in our store, then we may share that with them as well.
 HOW WE STORE AND SECURE PERSONAL DATA
Pawn
Prior to any transaction, a customer must present “valid
identification”, which means “the document is currently valid or has
been issued within five years and contains a photograph or
description, or both, of the person named on it, and, where applicable,
is signed by the person, and bears a serial or other identifying
number”. Examples of ID documents are,
1. United States Passport
2. Driver’s license issued by any US state or Canada
3. Identification card issued by any US State
4. Identification card issued by the United States
5. Foreign passport in addition to another address bearing form
of identification
The data from this ID is then placed in our computer data base by an
employee. This only needs to happen one time per customer. Each
time the customer does business with the store, they must present a
valid ID or they will be refused service. This allows the employee the
opportunity to affirm that the ID belongs to the person actually
presenting it. A sample copy of a customer’s pawn file is included in
the back of this section for reference. This data base also includes
every pawn related transaction that has taken place in the store since
its inception. These electronic records are never purged so as to keep
continuity in our loan logs. It also allows for the customer to have
long terms of inactivity without us losing their track record.
We create pawn tickets for each transaction which are signed and
kept for a minimum of five (5) years per 32 CFR part 232.9(5)(ii).
The customer receives a copy which they are to provide upon the
renewal or redemption of their loan. The copy they provide is stapled
Military Lending Act (MLA) Procedures
In accordance with 32 CFR part 232, which is an extension of 10 U.S.C.
987, and is titled ‘Limitations on Terms of Consumer Credit Extended to
Service Members and Dependents’, the following policies and procedures
are set forth to be followed by this business.
According to 32 CFR 232.3(i)(1) and (3), pawnbrokers meet the definition
of ‘creditor’ because they are in the business of extending consumer
credit, and they meet the transaction standard for a ‘creditor’ under
Regulation Z with respect to extensions of consumer credit to covered
borrowers.
COVERED BORROWERS
The MLA defines a ‘covered borrower’ in 32 CFR 232.3(g)(2) and (3)
and places them in one of two categories. One is an ‘active’ member of
the military and the other is a dependent of a member of the military. An
‘active’ member of the military is defined as being under a call or order
that does not specify a period of 30 days or fewer. In the case of a member
in the service in the Reserves, or the National Guard, the call or order must
not be less than 180 days as defined in 10 U.S.C. 101(d)(6).
A ‘dependent’ is defined as:

(A) the spouse;

(B) a child who—

(i) has not attained the age of 21;

(ii) has not attained the age of 23, is enrolled in a full-time course of study
at an institution of higher learning approved by the administering
Secretary and is, or was at the time of the member's or former member's
death, in fact dependent on the member or former member for over one-
half of the child's support; or

(iii) is incapable of self-support because of a mental or physical incapacity

that occurs while a dependent of a member or former member under
clause (i) or (ii) and is, or was at the time of the member's or former
member's death, in fact dependent on the member or former member for
over one-half of the child's support;

(C) a parent or parent-in-law who is, or was at the time of the member's
or former member's death, in fact dependent on him for over one-half of
his support and residing in his household; and

(D) an unmarried person who—

(i) is placed in the legal custody of the member or former member as a

result of an order of a court of competent jurisdiction in the United States
(or possession of the United States) for a period of at least 12 consecutive
months;

(ii) either—

(I) has not attained the age of 21;

(II) has not attained the age of 23 and is enrolled in a full time course of
study at an institution of higher learning approved by the administering
Secretary; or

(III) is incapable of self support because of a mental or physical incapacity

that occurred while the person was considered a dependent of the member
or former member under this subparagraph pursuant to subclause (I) or
(II).
OFAC/SDN Compliance
The Office of Foreign Assets control (OFAC) maintains and publishes the
Specifically Designated Nationals and blocked entities or SDN list. As a
precious metals dealer the store must check the name of each customer
against the then current SDN list. The following website can be used to
check the names:
http://sdnsearch.ofac.treas.gov/
If the name is a direct match, the store will call OFAC at their hotline
number 800-540-6322 to get direction from them. Possible outcomes of
this phone call may be to go through with the transaction, partially
complete the transaction (blocking), or reject the transaction.

BLOCKED ITEMS
If a transaction is to be blocked, then the collateral or cash presented by the
customer must be held aside in an interest-bearing escrow account until
such time as it is released by OFAC. A form TD F 90-22.50 Annual Report
of Blocked Property must be filed by Sept 30 (for all items blocked by June
30) with OFAC. The address to send the completed form to is:
Compliance Program Division
OFAC
Department of the Treasury
Washington, DC. 20220

A copy of the form is to be kept in an appropriate file for at least five

years after the release of the blocked item(s). An individual who has had
their possessions blocked may apply for a license to have the items un-
blocked using a form TD F 90-22.54 Application for the Release of
Blocked Funds. There are copies of these forms in the back of this
section of the manual. In addition, there is a copy of a blocked
transaction report as it may appear on the OFAC electronic reporting
site. This form is to be filled out and transmitted no later than 10 days
after the event occurs and a copy of the form will be kept in the
appropriate file for 5 years after reporting.

PROHIBITED (REJECTED) ITEMS

If the transaction is prohibited, then the entire transaction is considered
rejected. The individual will be told that the transaction cannot be
completed. No funds will be held since the transaction was not blocked.
In this case, a Report of Rejected Transaction will have to be filed at the
same address as above within 10 days of the actual occurrence. Rejected
Transaction Reports must be kept in the appropriate file for at least five
years after submission and can then be shredded. A copy of this form is
in the back of this section for reference.

REGISTRATION FOR E-FILING

In order to electronically report, the company will register with OFAC at
their website upon receipt of this manual. The stores Compliance Officer
will be the person responsible for completing the registration process.
The website address for registration is:

https://abarrslite.ofac.treas.gov/NewUser.aspx