Hi, my name is FC and I’m a gun dealer. Welcome to my hell.
Today, we’re going to explore the not-so-pretty side of the gun industry in a multi part series. Exploring the business side of the gun business is a rather multi faceted subject that not many gun dealers are wont to discuss, but I’m not your normal gun dealer. Let’s start with some of the basics and talk about the anti-money laundering (AML) regulations of the Bank Secrecy Act and how they could ostensibly be used as the new Gun Control Act of 1968 and a few related financial industry topics…
For gun shop owners, the financial issues start even before the guns hit the shelves. In order to get product, you need to pay for it. Or, at least have a line of credit to use. And where normal businesses (like adorable cupcake bakeries and poodle waxing shops) can apply for lines of credit at banks, we in the shady underworld of retail firearms sales don’t get the same type of treatment.
I have an uncle who said it best: the bank is not your friend. You are a number, you are a piece of meat they have to get a slice of every month and they’re in business to make money. If the housing crisis didn’t underscore every single one of those words to a T, I don’t know what else will. Banks do NOT lend firearm companies money. Whether it’s buying corporate bonds, underwriting a factory expansion or a revolving line of credit, they do NOT LEND THIS INDUSTRY MONEY. Period. Just ask Kelly McMillan for his take on the subject.
If you’re starting from the ground up with nothing to your name, things get even worse. The long term lending institutions that bankroll other industries have been giving the gun world the cold shoulder despite the massive profits generated. GE Capital is the latest example, and Michael Bloomberg has been doing his part to urge people to stop investing in the firearms market for retirement funds. In short, you’re boned.
Short term financing comes in a few flavors, most of your brand name consumer/business credit card issuers will issue a firearm business a credit or charge account without an issue, but we are usually careful to tiptoe about the issue. Chase and American Express have been relatively friendly with me, but I suspect that’s because I pay my bills on time and I spend more on annual fees than some people spend on ammunition. I use my business cards to handle inventory, paying Fedex and USPS, and general operational detritus.
Most of the financing in the gun industry comes from the gun industry itself. It’s rather strange. In the olden days when we had farmers and a far less service oriented economy, when things hit hard times, your neighbors would help you and you would reciprocate in their time of need. Think of it along the lines of: What would the Amish do? That’s the gun industry. I knew we were old fashioned, but even I think that’s a bit much.
That’s how many of us operate. Most of my inventory comes from manufacturers or distributors that are willing to extend me terms that let me run a business effectively and efficiently. Not the greatest plan, but it works. The problem is that when you become a larger enterprise, you reach a rate limiting factor which is X vendor will only lend you Y amount of product. You have to diversify your business spending across multiple vendors, but that’s a growing pains issue.
For the most part, the amount of product that I can carry is dictated by how much insurance coverage I have and how much credit my vendors will extend me.
In a perfect world, my place would be wall to wall with AAC, Wilson Combat, LaRue, Springfield Armory and I can’t decide on the last one but it’s a toss up between Silencerco/SWR and FN. I do love my Saker 5.56 but chicks dig SCAR’s…
As if getting financing wasn’t bad enough, getting it there is half the fun. Now that you have a firearm waiting to be shipped to or from your shop, you have to deal with the unmitigated morass that is shipping a firearm. For those who have had to do so for an occasional sale or trade out of state, or even for some seasoned professionals – it’s a front row seat to a common sense free-zone.
I have personally dealt with phone calls from UPS and Fedex outside sales reps vying for my firearm shipping business – and when I retort that I’d love to use them if their drivers and their counter clerks actually knew their own employers own protocol regarding the shipping of firearms. Looking at the contract of carriage for both UPS and Fedex, each of them carry specific handling requirements for firearm deliveries. In a nutshell: long guns can go ground, hand guns they require to go overnight.
This policy is regrettably lost on too many of their employees. Some will refuse to send the firearm. I’ve heard of a modern day version of the butcher with the thumb on the scale where people are forced to ship a long gun overnight (this is a $20 trip via ground and a $120 trip via overnight) and some even have the audacity to claim that their local operation supersedes what is their national policy.
Much to my chagrin, corporate HQ has sided on the side of the center in that they have created a company wide corporate policy that is subject to interpretation on the local level. If that’s the case, I have no idea why they created the policy in the first place. Must be some ISO 9000 bullshit.
I’ve had USPS clerks tell me that they cannot ship handguns from my business by pointing to the “Prohibited Items” poster, I point out that it’s wrong, they look it up in the manual and decide I’m right. It’s a gigantic circle of misinformation and all it does is result in higher costs for consumers due to the fact that we as an industry have to take more time getting their product sent. This would be no different than dealers charging more to send guns to California due to the higher regulatory burden and time involved with such transaction.
So, now the guns are paid for, and have finally gotten in the shop. Customers are milling about getting their greasy fingers all over your inventory and asking you every dumb question you can image. Someone tries to haggle you down to a price on a handgun where you’d actually be taking a loss on the sale. But finally, you actually make a sale that is profitable. Hooray! Pop the champagne! But wait — they bust out a credit card instead of cash. How are you going to take their money?
Credit card processing is without question one of the biggest clusterfucks I have ever had to experience. For the uninitiated, there are more credit card processors than online traffic schools – every single one of them wants your money, and they know you need them more than they need you.
Many businesses take credit cards with low interchange fees with no problem. Not this industry however.
Gun dealers need someone to swipe their customer’s plastic and take their interchange fee. The problem: Most credit card processors hate guns.
It is an exceptionally strange problem. You could sell cigars, cigarettes, beer, wine, bourbon, pizzas, harpoons, hammers, you name the object – and it’s not a problem until they find out it is a gun. I sense this is partly due to the slippery slope nature of civil litigation. The only reason that plaintiffs lawyers don’t sue Budweiser or Beam when someone misuses their product and hurts themselves or someone else is that nobody has set the legal precedent to do so yet, whereas the reason that major firearm manufacturers get on the hook legally when someone misuses their product is that they have a legal precedent to do so (Brady Campaign v Bushmaster, 2003).
After all, first the manufacturer of the deadly product and the credit card processor that swiped the card on their merchant terminal should be held equally liable as well, right?
While we’re at it we should just add Gregg the UPS driver to that list of defendants since he’s the one that physically brought those instruments of death into our perfect little world.
As James Trafficant would say – Beam me up.
What actually occurs in the real world is we are severely limited in terms of selection in finding a credit card merchant processor that fits the needs of the firearm retailer. Lets review some of the more visible and notorious payment providers, shall we?
- Google Checkout (Google is shutting this down, effective November 20, 2013)
- Paypal – No firearms or related materials
- Pay Anywhere / Intuit – face to face card present sales only
- First Data – face to face card present sales only
- Nova/Elavon – I did not get a call returned from them on this subject, so we’ll chalk that up as a no
You get the picture. There’s a handful of providers that service the firearm business, all that know they charge more and that consumers have to pay it. I don’t like having such few options but I’m not being given much of a viable choice in the matter and it is what it is. I’ve learned to stop worrying and love the bomb. Speaking of financing terrorist activities…
I’ve recently identified a major contributing factor to the war on guns, and that factor is a three letter acronym called AML. For those who don’t work in the financial industry, that stands for ANTI MONEY LAUNDERING.
Very recently, I received a certified letter from a law firm. There’s only two things that come in certified letters from law firms – checks and bad news. It was bad news.
The letter that I got used extremely vague boilerplate language and terms such as “extra ordinary transactions” and “additional risk assessment” and my personal favorite phrase “termination of checking account privileges within 5 business days” – which is a great thing to be reading when you have $40,000 in auto drafts to Chase, American Express, EFT’s to pay vendors and $200 checks to BATFE for customer tax stamps, not to mention customer refunds, consignment distributions and the like.
What was interesting about this was a lack of due process and a lack of recourse. The letter wasn’t along the lines of a “Please contact us there’s a problem” so much as it was a “We have a problem and it’s you, get out”. So much for common courtesy.
I got this letter on a Monday afternoon after all the branches had closed and they informed me they were terminating my account the following Monday. Not knowing if this was a freeze or a closure or what it was, the bottom line is that this throws a major wrench into my business operations on a number of fronts, the most immediate being a lack of a way to bring in money and a lack of a way to pay vendors and other parties that extend credit. The secondary concern being that when vendors look at a customer’s credit profile, they perform what is called a verification of deposit with their financial institution to look at overdraft activity, average balance, transaction history, account length and other metrics. They do this to see if you are bouncing checks and dealing in good faith.
Over the many years I have been in business, my vendors get paid on time. Without exception. That’s why we get along so well, that’s why I get allocations from some of my best reps, and don’t let anyone else tell you – money is what makes the world go round. Distributors love accounts that pay on time, and getting a KSG or a PMR30 on allocation is one very big incentive we have to keep the vendors happy.
My Tuesday just had a new action item: Find out what’s going wrong and get it fixed. Little did I know I was about to enter a world of pain. I spent the evening reviewing accounts looking for discrepancies and account closure protocols from the Office of Thrift Supervision on my iPad until I passed out on the couch.
Waking up and rubbing my eyes, I realized that I had overslept my alarm. I had slept about 2 hours and I had a feeling I’d have a big day ahead of me. My first stop was visiting my favorite branch and talking to one of the gals I know there. She greeted me with an unenthusiastic guttural sound as she had gotten the memo that my business was no longer welcome at the firm. I asked her to print out everything that I had signed in terms of terms of service, fee schedules, signature cards… if it has my signature, I want a copy of all if it. She fired up her printer, ran off 9 pages, stapled it and handed it to me. I asked her if that was everything she had on my account. She said yes. I asked her if anyone would be able to help me in the branch. She said no, her corporate office instructed her not to talk about it and that I would have to speak to their lawyers as they would be the sole point of contact.
I folded the sheaf of paper into my briefcase and left for my office. Stuck at a read light, I skimmed the packet she had handed me. 9 pages? For a business account? They were not duplex printed so it seemed exceptionally light to me. My voice mail had indicated a call from a different branch from yesterday that I had not listened to that I decided to put on the speaker. One of the managers wanted to speak to me. I decided to skip the office and head straight to see the branch manager. A Facebook message came in from a buddy of mine who went to elementary school with me who works at the same organization and he told me I would have to resolve it on the branch level before escalating it. I told him I was on my way as I walked into the managers office, parked my butt in the guest chair and set my iPhone to shuffle.
As I was serenaded with the dulcet tones of The Waiting by Tom Petty and The Heartbreakers, I questioned if Skynet is alive, well and self aware in the form of Siri. That’s a thought that’s going to fester.
Five minutes later the branch manager walks in stating that there’s a problem with my account, I cut her short and show her the letter I got. I ask her if there’s any way to resolve this in house. She says no, she was instructed to direct me to their legal team and they would be the only ones capable of discussing the issue. Having nothing to lose, I ask her to call them. She hands me the phone and I realize how awkwardly short the cord is as she tries to write email and get work done while I’m on the phone waiting for Godot. The law firm asks who I am and if I can hold. After 15 minutes the receptionist said that the only attorney in the office designated to speak about this issue had appointments until 2PM.
Me: Does he have anyone scheduled after the 2PM?
Me: He does now. I’ll be there at 3. Okay?
The tone of her voice led me to believe she was scheduling me at 3PM and the local police at 3:01. I hung up the phone and the branch manager asked me if I needed anything else. Feeling like I was missing something, I asked her the same question I had asked the gal at the other branch – if she could print out everything they had on file for my business account. Looking at me for a moment with trepidation, she reached for the phone and called her legal department to see if she could give me everything they had in the file. Legal gave her the all clear, so she proceeded to print EVERYTHING on my account. This sheaf of papers was substantially thicker than the first batch I had received.
I realized that she had either stumbled upon a separate file on my business and was willing to share it with me and the other branch was not – or the other branch simply did not recognize my request when I asked for EVERYTHING on my account. Whatever the truth may be is not germane to the discussion, except I learned a number of critical things from my visit to the second branch that I’ll get into later. I reviewed the packet with the branch manager noting a number of discrepancies, the most glaring being that my name is now apparently Juan Suarez and my email address is a real estate agency in El Paso, Texas. I asked her what that was about and she had no idea how that got mixed up. Before I left, I made sure she knew how much of a pain in the butt this was going to create for me as I went to work.
Oddly enough, it took me only 10 minutes at my desk reviewing all the paperwork that I realized that there was still not enough fine print that I had been given. Financial institutions create fine print by the truckload, and there was an alarming lack of it. There’s no way to phrase it without making it sound like an accusation but I had a feeling there was a distinct lack of transparency occurring.
My Saddleback briefcase had decided that two adventures would not be enough fun for the day as I drove back over to talk to the branch manager. She was on the phone and after a short wait I asked her what I was missing here since there was an alarming lack of fine print. I got a guarded look as she once again hit CTRL-P and ran off a 14 page wall of text. As I was handed this wall of text, I realized that the third time was in fact the charm. Transparency and getting it right the first time was not on my side today.
Running on Empty is a great Jackson Browne song but a terrible way to start your day so I had lunch and I stopped by the corporate office to visit the buddy of mine I went to elementary school with to see if there was any way he could help me. He was not at his desk and the receptionist basically told me that the branch manager at my local branch would be able to help me with everything. I tried to explain to her that there was no way that I was getting any kind of resolution. She handed me a phone and dialed a branch manager who put me on hold. After a short wait in the branch manager’s office, I was informed that the decision to terminate the account was made by the legal counsel because there was something funny going on and they had to file a Suspicious Activity Report (SAR) on me. He went on to state that the financial institution had nothing to do with the decision and I would have to talk to the lawyer that sent the letter.
When the most consistent thing in your day is people telling you to call their lawyer – you’re having a pretty bad day.
It was nearing 3PM so I drove to the law firm of Dewey, Cheatem and Howe. That’s not their real name, but this is by far the worst law firm I have ever dealt with on the face of the planet. This is one of those law firms where the name partners must have graduated from Cooley or Peoples (the one in L.A. not the good one in Houston), it was that awful. If my previous statement sounded condescending then my sentiment carried perfectly. I arrived and told the receptionist that I was a 3PM. She informed me that he was still in with his 2PM and to have a seat.
Thirty minutes later I was informed that he had no 3PM appointment, he had left for the day, and there would be nobody at the firm that I would be able to discuss the matter with. As I am hearing this from the receptionist/office manager I’m getting a Facebook message from my guy at the corporate office telling me “Go call the lawyer, they’re the only ones that can talk about it and they’ll be able to help you” sending me into a level of range only Don Draper could achieve, complete with throbbing vein in forehead.
Since that was quite the long read, lets recap our events.
1. The certified letter I was sent indicates the law firm is the point of contact for the account termination.
2. Every branch manager, the corporate office, and my man in Havana indicates the law firm is the point of contact for the account termination and is the sole communication point.
3. One branch manager indicates that the decision to terminate the account was not made within the financial institution and that it would have to be discussed at the level of the law firm.
4. A representative of the law firm indicates that they had nothing to do with the process, they were following orders from their client to terminate the account and that the issue is not up for discussion, debate, or appeal.
5. A representative of the law firm indicates that the lawyer that wrote the termination letter has left for the day, even after I telephoned them 4 hours in advance to let them know I wanted this issue discussed and that I was in the lobby.
Clear as mud? Good. Either the law firm has decided that they’re going to selectively represent the client when they sent the notice of account termination and not represent them when someone actually calls them out on it or the client has instructed their legal representation to stonewall everyone. Some would call that a failure to communicate. I view it as someone dealing in bad faith, grounds for a complaint to the state bar association, or a combination of both.
(My good friend Steve made a joke about this and I laughed so if anyone is wondering, the financial institution in question IS NOT BANK OF AMERICA. Along those lines, I will not respond in kind and will leave our financial services provider nameless and not drag their name through the mud.)
Meeting the Socratic wonder that is a middle aged woman in her 40’s that has decided she’s not taking any shit from people like me is always entertaining, albeit challenging. I argued with her over how ridiculous this idiotic round robin was and she was not about to give up any ground. The unstoppable force had met the immovable object. Finally, a young woman who was a paralegal of some kind offered to intervene. I like to think she felt pity for her boss, but she sat down with me and was willing to discuss the issues I had. Dialing it back a notch was difficult but the woman said that she’s just a legal assistant and I didn’t want to run roughshod on someone who didn’t deserve it.
The first thing I brought up was the lack of transparency. There was no reason or foundation for my account closure. She pointed out some flaws in my account structure and was able to say a few things without saying a few things. Basically, there’s a zero tolerance policy for structuring deposits and money laundering. Apparently my business account seems to have caught one or both of those somehow.
Extending her the transparency that was not extended to me by letting her look at the books led to a discovery. When my account was opened, I was not properly classified as a firearm enterprise. This is not weeks or months ago but years ago. According to her not a law school graduate opinion, the fact that I was running a firearm business without calling it a firearm business means that every dollar that my business brought in from account inception is considered laundered money and kind of a big deal, what with all the terrorism and meth labs floating around. There’s only one sticking point (actually, several) with that. .
Remember when I told you about the hunt for fine print and the second trip back to see the branch manager? Not just a pretty face, she had given me the proverbial smoking gun.
When my account was first opened several years ago, they got a copy of the IRS Employer Identification Number statement that has MANUFACTURING FIREARM in big bold Helvetica like print. This had been apparently overlooked. When I registered my trade name with the state division of corporations, and I disclosed the trade name to them a week after the account opened. This too had been apparently overlooked. Last year when I added my brother as a signatory to the account, they asked me how business was and if we needed to make any updates to the account – and they printed the “About Us” section of my website and my company Facebook page and added it to the file. This too had been apparently overlooked as well as my apparent name change to Juan Suarez, REMAX Top Producer 2012 and general delivery email box.
So, they’re claiming I didn’t disclose my firearm business to them which means I laundered money, when in actuality the documentation and disclosure of my firearm business has been there since account inception. The paralegal seemed to think I was a pretty honest guy and after making a scene with her boss and explaining this to her, she offered me a cold beverage and said she’d review this with the client tomorrow. I made an offer of Status Quo Ante – I got the idea from an old Tom Clancy novel, and I think that would be the path of least resistance in dealing with this massive quantity of mierda de toro. However, it did lead me to a number of surprisingly valid conspiracy theories.
- They are grossly incompetent and trying to blame me for their failures to adequately document customer disclosures.
- They do not like guns very much and are trying to find a way out of all firearm related businesses, so they are strategically eliminating them via Anti Money Laundering initiatives.
- I’m more profitable dead than alive. I suspect they’ve taken out a life insurance policy on me and are trying to get my blood pressure so high I have a stroke, AMI or some other type of fatal stress related injury.
If #3 is their real plan, I hate to say it but it is working.
After doing some basic research via the FINCEN website, it yields that a few interesting things. For starters.
This particular organization seems to be pretty vigilant in fighting money laundering, which is understandable. What I don’t get is that disclosing the existence of a SAR is in fact a federal criminal offense. So, they’re all about enforcing one law but not really enforcing another? That’s one interesting pick and choose.
Want to know the really interesting part? By telling me that they have a SAR open on me, they’ve broken federal law. If I tell someone else in the same organization that I know they opened a SAR on me, they will probably open a SAR on me. No, this is not a recursive joke. According to the manual I discuss below, you can have a vicious SAR circle where discussing the unlawful disclosure requires mandatory reporting which may lead to additional unlawful disclosures and mandatory reporting et al.
We live in one fucked up society sometimes.
According to the Bank Secrecy Act/Anti-Money Laundering Examination Manual – almost everything a firearm business does, is considered some sort of money laundering or structuring. The bar is set so low that even the flimsiest generic things will trip a red flag. For example. 30 Sig 226 Elite Dark pistols come in. The dealer sells 2 of them a day for 15 days and the credit card company or cash deposit or whatever deposits to the account and at the end of the month, the dealer pays Sig with a wire transfer or a check.
That example – would constitute a satisfactory example of structuring or laundering.
I guess that’s my long-ass way of saying that, for gun dealers, the financial side of the business sucks from start to finish. The system is setup to make the process of handing guns to legal owners as difficult as possible, and getting paid for that trouble even more so. And thanks to the AML laws, if a bank decided to start “cracking down” on firearms businesses they have a a perfectly legal way of making their lives a living hell without one single recourse.
Oh, and when they terminate your account – good luck getting credit at vendors now. Vendors look at three things: duration of checking account, overdrafts, volume of deposits vs drafts and average daily balance. Your business credit history is effectively deleted.
Biggie was right. Mo Money Mo Problems.