Knowledge is Power: What You Need To Know To Be In Compliance

They say knowledge is power. As a business owner, what could be more important than empowering your staff and enriching yourself with the knowledge to get business done right on all levels? As business owners and management, we also take on the roles of teacher, mentor, and, sometimes, rule enforcer. Our livelihood depends on how well our staff is able to articulate our policies and procedures, and put them into practice whether it’s teaching someone how to grade a diamond, identify a real watch from a fake, or if that 14K gold necklace is really gold.

With a multitude of rules, we find ourselves having to become human resource experts, Military Lending Act (MLA) experts, privacy act experts, Truth-in-Lending Act (TILA) experts, and even anti -money laundering savvy.  Just like failing to train an employee on daily operations can be costly (i.e. buying a fake stone or chain), failure to train on required matters of compliance can be as well.

One case in point is a recent enforcement action as posted on, 12/30/2015:

                The Company did not have any anti-money laundering (“AML”) program in place until 2011, five years after it was established, and only after the IRS SB/SE examiners instructed it to implement a program. Although the Company subsequently obtained an AML program, the program was not reasonably designed to ensure compliance with the Bank Secrecy Act (BSA). As described in more detail below, the Company failed to appropriately assess its money laundering and terrorist financing risks, conducted almost no due diligence on many of its highest risk customers, and failed to implement effective procedures to identify red flags or to conduct inquiries when such red flags were present, among other things. The Company failures exposed the U.S. financial system to serious risks of money laundering and terrorist financing, given its transactional activity.

                As part of those findings:

                The Company did not provide for education and training of personnel regarding their responsibilities under the BSA and its implementing regulations. (31 C.F.R. § 1027.210(b)(3)) The IRS informed the Company of this requirement during the 2011 examination, and the anti-money             laundering program the Company adopted after the examination expressly required such training. Notwithstanding having ample notice of this requirement, the company failed to conduct any training.

                CIVIL MONEY PENALTY

                FinCEN has determined that the Company willfully violated the program and reporting requirements of the BSA and its implementing regulations, as described in the CONSENT, that the owners willfully     participated in these violations, and that grounds exist to assess civil money penalties. FinCEN has determined that the penalty in this matter will be $200,000 imposed on the Company and the owners.

Training and implementation can not only cost you in the operations side, as in purchasing fraudulent goods, it can cost you in regulatory penalties as well.

As indicated earlier, knowledge is power. A pawnbroker may have to fill out an 8300. A dealer in precious metals, under Title 31 of the U.S. Patriot Act, is required to perform internal monitoring, provide training, file Suspicious Activity Reports (SARs), and, of course, follow their AML policy and procedure manual. So what does one need to know about compliance training?

That question is not just solely based on a title of what a person does (i.e. dealers in precious metals), but must be based on a risk approach. Does the company deal with large transactions? Does the company deal with wholesalers? Does the company deal in precious metals, bullion, or diamonds? These are just a few of the questions you must answer to know how to train and what to train. You would not generally train an employee how to purchase mink coats in the middle of the desert, so why would you provide training on how to provide suspicious activity on buying bullion if one doesn’t deal in bullion? The moral of the story is that one-size training does not fit all.

In the past 11 years of compliance-related training, I have come up with two categories:  the Haves and the Have Nots. The Haves are the ones who have an interest in their day-to-day business, make money, ensure the business runs smoothly, and provide their staff with the resources and the tools to empower themselves, thus following the rules and keeping the business safe from those pesky little fines that have known to be in the six figures.

The Have Nots are the ones who glide through the day getting lost in their business, not growing, and in some cases, not complying because it’s too much work, inconvenient, or not cost effective.

There is hope that few are on the latter side, but the reality is, many are. Just recently, I contacted someone in the industry as to their requirements and their response was, “It’s outrageous that I would have to spend money and time complying with something that I shouldn’t have to follow as I am doing business just fine and no one bothers me.“ My response might be that you could go years without paying taxes until the day you get audited, fined, or imprisoned out of existence.

So, regardless of whether or not one wants to comply, they should comply, and it all starts with training.

What does the store owner have to do? What are the requirements of the employee?

Under the regulation policy and procedure, you must clearly indicate the following:

  • initial training and testing of new employees
  • ongoing training and testing of existing employees
  • documented training logs
  • timeliness of training material
  • overall employee attitude and knowledge of BSA issues

How do you train your staff?  What training have you amassed? Have you attended a compliance seminar? Have you researched the regulations governing the business? Have you developed an AML program, if required, and have you implemented it? These are questions you should ask to further determine if you are one of the Haves or the Have Nots.

What about the staff? Do they know how to recognize suspicious activity? Do they know what structuring is? Do they know what could be a source of funds trigger? Do they know how, and when, an 8300 would be followed? Do they even know what SAR means? Some examples could include:

  • Consumer uses false ID
  • Consumer alters transaction upon learning that he/she must show ID
  • Consumer alters the spelling or order of his/her full name
  • Two or more persons working together to break one transaction into two or more transactions in order to avoid AML/BSA reporting requirements
  • Consumer presents different identification each time a transaction is conducted
  • A legitimate ID appears to have been altered
  • A transaction in which it appears the customer is attempting to keep the 8300 form from being filed or is trying to cause the filing of a false or incomplete form
  • A transaction that appears to be “illegal”
  • Activity by the customer does not meet with the usual business practice of the customer or, the activity is not usual for the business. For example, if a customer came in every day with five gold coins and received less than $9,000 in payment, it could be assumed that the customer is trying to structure transactions as to avoid 8300 forms being filed.
  • Consumer who works at a fast food restaurant purchases $2,000 per week in bullion (potential source of funds issue)

There is a great catch phrase going around these days in the compliance space, “Pay now or pay later”. You can pay now by taking the time to implement the appropriate resources to ensure your business is in compliance with the latest requirements and make certain that your staff knows the difference between a SAR and an 8300, what the record keeping requirements are, etc.

Or, you can pay later when Uncle Sam pays a visit and drops the hammer, the bank says good-bye, or the processer, such as PayPal, says adios, all of which could have a very strong impact on the operation of your business.

What is the moral of the story? Empower yourself by learning what is required to be compliant and educate your staff on the requirements as well. The NPA offers an online training course which is a great low-cost way to educate the staff. For more information, visit


Bob Frimet is president of RMF Consulting Group and is a certified anti-money laundering specialist (CAMS). He has served the pawn, check cashing, payday, title, and other industries since 1991. Mr. Frimet offers compliance services nationwide and may be reached at (702) 596-8370 or at [email protected] Visit for more information.


NPA offers an online AML compliance program for pawnbrokers and dealers in precious metals and an anti-money laundering program. For more information, click here.