BILL ANALYSIS Ó SB 762 Page 1 Date of Hearing: June 18, 2013 ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER PROTECTION Richard S. Gordon, Chair SB 762 (Hill) - As Amended: June 4, 2013 SENATE VOTE : 31-2 SUBJECT : Secondhand goods: lost, stolen, or embezzled items. SUMMARY : Provides that operating as an unlicensed secondhand dealer and failing to report specified transactions of secondhand goods may be considered criminal profiteering activity or organized crime, clarifies the interests of licensed pawnbrokers and secondhand dealers relating to the seizure and disposition of property during a criminal investigation or case, and subjects the profits of unlicensed trade in precious metals to criminal forfeiture. Specifically, this bill : 1)Clarifies that if a peace officer has probable cause to believe that specified property in the possession of a licensed pawnbroker or secondhand dealer is lost, stolen, or embezzled, the peace officer may place a hold on the property not to exceed 90 days. 2)Provides that a 90-day hold is created upon receipt by a licensed pawnbroker or secondhand dealer of a written notice from a peace officer that contains the following: a) An accurate description of the property being placed on the 90-day hold; b) An acknowledgment that the property is being placed on hold as specified, and denoting whether physical possession will remain with the licensed pawnbroker or secondhand dealer or will be taken by the law enforcement agency instituting the 90-day hold; c) The law enforcement agency's police report or department record number, if issued, for which the property is needed as evidence; and, d) The date the notice was delivered to the licensed pawnbroker or secondhand dealer that initiates the SB 762 Page 2 specified notification period. 3)Provides that the hold will not exceed a period of 90 calendar days, but may be renewed as specified. 4)Provides that the hold may be renewed as often as required for a criminal investigation or criminal proceeding by any peace officer who is a member of the same law enforcement agency as the peace office placing the hold on the property. 5)Permits a peace officer to either take physical possession of the property as evidence, consistent with a peace officer's right to a plain view seizure for a criminal investigation or criminal proceeding, or to leave the property in the possession of the licensed pawnbroker or secondhand dealer as a custodian on behalf of the law enforcement agency. 6)Requires the licensed pawnbroker or secondhand dealer to maintain physical possession of the property placed on hold and prohibits the property's release or disposal, except pursuant to the written authorization signed by a peace officer who is a member of the same law enforcement agency as the peace officer placing the hold on the property. 7)Specifies that the hold terminates when the property is no longer needed as evidence in a criminal investigation or criminal proceeding at which time the property shall be disposed of as specified. 8)Specifies that the hold shall not be applicable to secure lost, stolen, or embezzled property found in the possession of an unlicensed pawnbroker or secondhand dealer that has not duly and correctly reported the acquisition as specified, and allows in such circumstance, a peace officer having probably cause to believe the property found in the possession of an unlicensed pawnbroker or secondhand dealer is lost, stolen, or embezzled, may seize the item or items consistent with the legal authority granted to the peace officer. 9)Specifies that if property placed on hold is physically surrendered or delivered to a law enforcement agency during the period of the hold, the hold and the pawnbroker's lien against the property shall continue. 10)Clarifies that whenever a law enforcement agency has SB 762 Page 3 knowledge that property in possession of a licensed pawnbroker or secondhand dealer has been reported lost, stolen, or embezzled, the law enforcement agency must within two business days after placing a hold on the property notify the person in writing who reported the property as lost, stolen or embezzled. 11)Adds embezzled property to the list of property that may require a hold. 12)Specifies that when property in possession of a licensed pawnbroker or secondhand dealer which is subject to a hold is no longer required for the purpose of an investigation or criminal proceeding, the law enforcement agency that placed the hold shall return the property to the licensed pawnbroker or secondhand dealer from which it was taken if the law enforcement agency took physical possession of the property. 13)Specifies that a licensed pawnbroker or secondhand dealer shall not refuse a request to place property in their possession on hold as specified when a peace officer has probable cause to believe the property is lost, stolen, or embezzled. If a licensed pawnbroker or secondhand dealer refuses a request to place property on hold as specified, the property may be seized with or without a warrant and the peace officer shall issue a receipt as specified, left with the licensed pawnbroker or secondhand dealer and specifies that that property should be disposed of accordingly. 14)Specifies that if a search warrant is issued for the search of a business of a licensed pawnbroker or secondhand dealer to secure lost, stolen or embezzled property that has been placed on hold, the hold shall continue for the duration that the property remains subject to the court's jurisdiction and specifies that when the property seized for a criminal investigation or criminal proceeding has concluded the property shall be disposed of as specified. 15)Specifies that if a civil or criminal court is called upon to adjudicate the competing claims of a licensed pawnbroker or secondhand dealer and another party claiming ownership or an interest in the property that is or was subject to a hold as specified, the court shall award the possession of the property only after due consideration is given as specified. SB 762 Page 4 16)Specifies that a licensed pawnbroker or secondhand dealer is not subject to civil liability for compliance as specified. 17)Specifies that if anyone makes a claim of ownership, the person shall file a written statement, signed under penalty of perjury, stating the factual basis upon which they claim ownership or an interest in the property with person having custody of the property shall notify the pawnbroker of the claim by providing a true and correct copy of the claim to the pawnbroker. 18)Specifies that in adjudicating the competing claims of a pawnbroker and a person claiming ownership or an interest in the property seized from a pawnbroker the adjudicating court shall give due consideration to the specified effect on the claim. 19)Specifies that at least 30 calendar days before any hearing adjudicating any competing claims of a pawnbroker and a person claiming ownership or an interest in the property, the person having custody of the property shall deliver to the pawnbroker a true and correct copy of the police report, redacted as may be required by law and consistent with due process of law, substantiating the basis of the seizure. 20)Specifies that organized crime also means the unlicensed engagement in the business of a secondhand dealer or pawnbroker as specified, while not reporting daily acquisitions of secondhand property. 21)States that any specified violation of buying, selling, trading, accepting for sale on consignment, accepting for auctioning, or auctioning secondhand tangible personal property as specified, including but not limited to gold, silver, platinum, palladium, and jewelry made of gold, silver, platinum, palladium or having any diamond, ruby, emerald, or other precious stone, or any item containing sterling or fine silver may be defined as criminal profiteering activity and specifies that for any items which result in the forfeiture of property, the funds shall be distributed in the following manner: 50% shall be distributed to into the general fund of the city, county, or city and county that instituted the forfeiture, and 50% shall be distributed to the general fund of the city, county, or city and county that prosecuted the forfeiture. SB 762 Page 5 22)Exempts a secondhand dealer or pawnbroker from retrieval of property which was a part of a criminal investigation, if after receipt of the written advisement as specified, the licensed pawnbroker or secondhand dealer willfully refuses to consent to a statutory hold or a search warrant for the business which has resulted in the seizure of the subjected property. 23)Provides that the return of property by a law enforcement agency required to be made to a person claiming to be entitled to possession of a lost or stolen vehicle is not required if the report of the theft or loss of the vehicle into the automated property system preceded the report of the acquisition of the property by a licensed pawnbroker. 24)States that no reimbursement is required by this bill pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or a school district will be incurred because this bill creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution. 25)Makes other technical, conforming and clarifying amendments. EXISTING LAW : 1)Defines a secondhand dealer to mean and include "any person, corporation, firm, or corporation whose business includes buying, selling, trading, taking in pawn, accepting for sale on consignment, accepting for auctioning or auctioning a secondhand tangible personal property." (Business and Professions Code (BPC) Section 21626) 2)Specifies that a secondhand dealer does not include a coin dealer or participants at gun shows or events, as specified. (BPC 21216) 3)Specifies that secondhand dealers are not persons who perform the services of an auctioneer for a fee or salary or any person whose business is limited to the reconditioning and SB 762 Page 6 selling of major household appliances, provided specified conditions are met. (BPC 21626.5) 4)Specifies that tangible personal property includes, but is not limited to, all secondhand tangible personal property which bears a serial number or personalized initials or inscription or which at the time it is acquired by the secondhand dealer, bears evidence of having had a serial number or personalized initials or inscription. (BPC 21627(a)) 5)Specifies that tangible personal property may also include: a) All tangible personal property new or used, including motor vehicles, received in pledge as security for a loan by a pawnbroker; b) All tangible personal property that bears a serial number or personalized initials or inscription which is purchased by a secondhand dealer or pawnbroker or which, at the time of such purchases, bears evidence of having had a serial number or personalized initials or inscription; and c) All personal property commonly sold by secondhand dealers which statistically is found through crime reports to the Attorney General (AG) to constitute a significant class of stolen goods. A list of such personal property shall be supplied by the AG to all local law enforcement agencies as specified. (BPC 21627(b)) 6)Requires every secondhand dealer or coin dealer as specified, to report daily, or on the first working day after receipt or purchase of secondhand tangible personal property, on forms or through an electronic reporting system approved by the Department of Justice (DOJ), all secondhand tangible personal property, except for firearms, which he or she has taken in trade or pawn, accepted for sale on consignment, or accepted for auctioning to the chief of police or the sheriff as specified. (BPC 21628) 7)Requires that whenever any peace officer has probable cause to believe that property, except coin, monetized bullion, or commercial grade ingots as specified, in the possession of pawnbroker, secondhand dealer, or coin dealer is stolen, the peace officer may place a hold on the property for a period of time not to exceed 90 days and requires the peace officer to SB 762 Page 7 provide a specified written notice at the time of the hold. (BPC 21647) 8)States that whenever a law enforcement agency has knowledge that property in the possession of a pawnbroker, secondhand dealer, or coin dealer has been reported as lost or stolen the law enforcement agency shall notify the person in writing, who reported the property lost or stolen, of the following: a) The name, address, and telephone number of the pawnbroker, secondhand dealer, or coin dealer who reported the acquisition of the property; b) That the law neither requires nor prohibits payment of a fee or any other condition in return for the surrender of the property, except that when the person who reported the property lost or stolen does not choose to participate in the prosecution of an alleged thief, the person shall pay the pawnbroker, secondhand dealer, or coin dealer the out-of-pocket expenses paid in the acquisition of the property in return for the surrender of the property; c) That if a person who reported the property as lost or stolen takes no action to recover the property from the pawnbroker, secondhand dealer, or coin dealer within 60 days of the mailing of the notice, the pawnbroker, secondhand dealer, or coin dealer may treat the property as other property received in the ordinary course of business and during the 60-day notice period may not release the property to any other person; and d) That a copy of the notice, with the address of the person who reported the property as lost or stolen deleted [sic], will be mailed to pawnbroker, secondhand dealer, or coin dealer who is in possession of the property. (BPC 21647) 9)Specifies that when property in the possession of a pawn broker, secondhand dealer, or coin dealer is subject to a hold as specified, and the property is no longer required for the purpose of a criminal investigation, the law enforcement agency that placed the hold on the property shall release the hold on the property. (BPC 21647) 10)Specifies that whenever property that is alleged to have been SB 762 Page 8 stolen or embezzled is taken from a pawnbroker, the peace officer, magistrate, court, clerk, or other person having custody of the property shall not deliver the property to any person claiming ownership unless specified provisions are complied with. (Financial Code Section (FC) 21206.8) 11)Specifies that a pawnbroker shall not be liable to any person for any property seized from the pawnbroker on account of the pawnbroker's inability to return the property to that person because of the seizure as specified. (FC 21206.8) 12)Defines criminal profiteering activity to mean "any act committed or attempted or any threat made for financial gain or advantage, which act or threat may be charged as specified." (Penal Code (PC) Section 186.2) 13)Defines organized crime to mean "a crime that is of a conspiratorial nature and that is either of an organized nature and seeks to supply illegal goods and services such as narcotics, prostitution, loan-sharking, gambling, and pornography, or that, through planning and coordination of individual efforts, seeks to conduct the illegal activities of arson for profit, hijacking, insurance fraud, smuggling, operation vehicle theft rings, fraud against the beverage container recycling program, or systemically encumbering the assets of a business for the purpose of defrauding creditors and also means a crime committed by a street gang, false or fraudulent activities, schemes or artifices as specified." (PC 186.2) 14)Requires forfeited cash and proceeds of the sale of forfeited property to be distributed as follows: a) To the bona fide or innocent purchaser, conditional sales vendor, or holder of a valid lien, mortgage, or security interest, up to the amount of his or her interest in the property or proceeds, as specified; b) To the Department of General Services or local governmental entity for all expenditures incurred in connection with the sale of the forfeited property; c) To the State General Fund or the general fund of the local governmental entity, whichever prosecutes; SB 762 Page 9 d) In a case of fraud involving the state recycling program, to a special fund designated in the Public Resources Code; e) In the case of child pornography crimes, to the county children's trust fund or State Children's Trust Fund; and, f) In a case involving the use of a minor for prostitution or related commercial sex acts, to the Victim-Witness Assistance Fund for child sexual exploitation and abuse counseling and prevention programs; 50 percent of the funds shall be granted to community-based organizations that serve minor victims of human trafficking. (PC 186.8) FISCAL EFFECT : Unknown COMMENTS : 1)Purpose of the bill . This bill is intended to reduce the amount of unlicensed and unregulated activity in the purchase and sale of secondhand goods, particularly those involving precious metals, by making the operations of an unlicensed secondhand dealer a "criminal profiteering activity", and adding failure of an unlicensed secondhand dealer to provide the required reports to local law enforcement to the definition of "organized crime." The profits of such activities would become subject to criminal forfeiture. SB 762 also provides a new level of due process protection for pawnbrokers and secondhand dealers to ensure that they receive or retain certain property which is no longer a part of a criminal investigation. Finally, it specifies a new formula for certain property obtained by forfeiture to be disbursed to certain public funds or agencies. This bill is sponsored by the California Pawnbroker's Association. 2)Author's statement . According to the author, "This bill attempts to curb the illegal trade in gold, silver, gems, and other items that are subject to the pawn and secondhand dealer license requirements. Licensed secondhand dealers are required to report to local law enforcement daily all transactions of this type. DOJ must also be notified daily. Perhaps more importantly these items must be held for 30 days for the purpose of inspection by law enforcement. Law enforcement knows exactly where to go to inspect because the SB 762 Page 10 items must be available at the permanent address of the licensee. None of the gold buying models mentioned above can or do comply. Additionally the bill describes to manner in which police may put an unlimited number of 90-day "holds" on merchandize suspected of being "lost, stolen, or embezzled" and it should be noted that the police may physically take possession of such items, but the status of the item is still a hold, this preserves the property interest of the lender who has perfected a lien on the property." 3)Regulation of secondhand dealers and pawnbrokers . A secondhand dealer includes a person, business or corporation whose main purpose is to buy, sell, trade, take in pawn, accept for sale on consignment, or accept for auction, secondhand tangible personal property. Current law specifically exempts certain individuals from the definition of a secondhand dealer, including coin dealers, certain auctioneers and certain appliance repair persons. City and county licensing agencies have been delegated the responsibility to implement the State Secondhand Dealer and State Pawnbroker licensing process through local programs. As part of this implementation, a local licensing agency (usually a sheriff or chief of police) is required to accept an application from any person desiring to be licensed as a secondhand dealer or pawnbroker within their jurisdiction. Prior to the granting of a license, the local agencies are required to submit the secondhand dealer or pawnbroker "application package" to DOJ for processing. DOJ completes the background check and issues the appropriate license number to the local authority requesting the license. An initial application for local licensure consists of fingerprints, a licensing fee and evidence of a surety bond. Secondhand dealers and pawnbrokers are required to renew their licenses biannually and submit a new application packet each renewal. Once secondhand dealers and pawnbrokers have received the appropriate license from the local agency, in addition to any other business licenses or permits needed to operate, they are eligible to sell a wide variety of tangible personal property. Under current law, if someone is operating as a secondhand dealer without a license they are subject to punishment for unlawful conduct. If a person knows or should have known they were committing a violation, they can be penalized by a fine SB 762 Page 11 of up to $1,500 or imprisonment in the county jail for two months or both for the first offense, a fine of up to $5,000 and imprisonment in the county jail or both for the second offence, and a fine of up to $25,000 and imprisonment in county jail up to six months or both for the third offense. This bill strengthens the penalties for operating without a secondhand dealer's or pawnbroker's license by making unlicensed activity part of the definitions of criminal profiteering and organized crime. The net result would be to decrease the prevalence of unlicensed activity because of the increased penalties, and also to allow law enforcement to seize the assets of those operations and distribute them between the local agencies responsible for instituting and prosecuting the forfeiture. 4)Problems with unlicensed activity . There have been some examples provided by the author's office noting a recent increase in businesses that operate without a secondhand dealer's or pawnbroker's license where sellers may quickly obtain cash for property, often gold or other precious metals. According to an August 10, 2010 article from The Daily News of Los Angeles, "Law enforcement and local governments are scrambling to shut down a shadow industry that has sprung from the booming cash-for-gold business nationwide: Thieves are snatching jewelry, then converting it into a quick payday at the shops." Unlicensed entities that promise "cash-for-gold" are not reporting the items they receive to the appropriate law enforcement entity, nor are they holding them for the appropriate time, which may potentially destroy or eliminate any chance for law enforcement to recover stolen or illegal items. In a September 22, 2012 news story in the San Bernardino County Sun, it was reported that leaders in the City of Rialto have placed a moratorium on new cash-for-gold shops due to an increase of thefts. According to the article, officials say that robbers sell the stolen goods at such cash-for-gold stores which are more lax than pawn shops in verifying the merchandise brought in. "Currently, pawn shops are required to hold the items for 30 days before selling them, which gives investigators time to find out if they are stolen." SB 762 Page 12 This bill would increase law enforcement's ability to remove the profit from these unscrupulous businesses by allowing law enforcement to deem such businesses to be "organized crime", which would permit such agencies to seize and distribute the assets of the business to the general funds of local governments. 5)Reporting requirements for secondhand good . When secondhand dealers or pawnbrokers take in items, whether buying outright or loaning money and holding for collateral, they are required to report daily or on the first working day after they have taken possession of an item on a "JUS 123" standardized form which must be completed for each item purchased, taken in trade, taken in pawn or accepted for sale on consignment. The forms require very specific information including name and identification of the seller, a description of the property, (such as serial numbers or other identifying marks), certification of ownership, certification that the seller's knowledge of the item is correct, and a fingerprint. Once completed, a copy is provided to local law enforcement, and a copy is retained by the dealer. This is to help ensure that items received by a secondhand dealer or pawnbroker are not stolen. Further, to protect the licensees and consumers who may have been victims of crime of theft, any item received by a secondhand dealer or pawnbroker is required to be held for 30 days. This allows sufficient time for the appropriate law enforcement entities to review the items received and determine if they have been reported stolen or are a part of some other criminal probe. This bill attempts to address the problem of individuals who have not established a legitimate business relationship with local law enforcement and are operating as a secondhand dealer or pawnbroker without submitting the required paperwork or holding items as required by current law by essentially making the operation of these businesses without licenses a form of organized crime. This may help to protect consumers who have had items stolen by prosecuting those unlicensed individuals who do not follow the appropriate steps in current law and do not hold or report the property for the appropriate law enforcement background checks. Currently, secondhand dealers and pawnbrokers must report on SB 762 Page 13 the standardized "JUS 123" form by hand. AB 391 (Pan) Chapter 172, Statutes of 2012 required secondhand dealers and coin dealers to help fund a new electronic reporting system which was developed by DOJ. Secondhand dealers and pawnbrokers will utilize an electronic database in which they will enter the information required in an electronic format, in lieu of submitting the "JUS-123" and that information will be available for all law enforcement agencies in a searchable format. Once the system is up and running, the information may be easier for law enforcement to search and retrieve lost or stolen property. Currently, the uniform electronic reporting system is still in the contracting/production phase, and its implementation date is not certain. 6)Due process procedures for the "90 day hold" . Current law allows a peace officer who has probable cause to believe property in the possession of a secondhand dealer or pawn broker is lost or stolen with the authority to place a hold on the item for 90 days and requires the peace officer to provide written notice about the item placed on hold. This bill updates the 90-day hold process by requiring law enforcement to follow additional procedures when retrieving an item that is thought to be lost, stolen or embezzled. Current law provides due process procedures for a pawnbroker to challenge a competing claim to ownership of property seized by law enforcement. In an effort to encourage individual and businesses to become actively licensed as a secondhand or pawnbroker business, this bill updates and clarifies law enforcement's existing authority to remove property and would provide additional due process requirements for the final disposition of property that is the subject of competing claims by a purported property owner and pawnbroker. 7)Arguments in support . The California Pawnbrokers Association writes in support, "The problem of illegal and unlicensed gold buyers is affecting every community in California. This activity takes advantage of the public, and is an impediment to the rightful return of stolen property, and makes effective law enforcement and prosecution of many tangible personal property crimes nearly impossible. This bill will provide the means for more vigorous prosecution of these crimes that are afflicted upon the California citizenry." 8)Arguments in opposition . The California District Attorneys Association (CDAA) writes in opposition, "CDAA is concerned SB 762 Page 14 with the language in the bill that governs the issuance of search warrants?before an officer could make a seizure, this bill would require that he or she has given the pawnbroker written notification as part of placing the item on hold. Jurisprudence surrounding the lawful issuance of search warrants is a balance between the right to be free from unlawful searches and the necessity of law enforcement to enforce the law and protect the public. The fiscal interests of one particular industry should not trump this carefully struck balance and respectfully, we feel this measure unduly restricts the ability of law enforcement to do its job." 9)Double-referred . This bill is double referred to the Assembly Public Safety Committee. 10)Comments for the Committee . The Committee should note that the substantial majority of the content of this bill deals with matters subject to the jurisdiction of the Assembly Public Safety Committee. As such, this Committee may wish to focus its consideration on matters related to the licenses themselves. For example, the Committee may wish to consider whether or not it is appropriate generally to increase the penalties for unlicensed practice, given that serious penalties are already available. Moreover, the Committee may wish to consider whether or not it is appropriate to directly equate unlicensed practice with organized crime, absent some evidence of an intention to engage in organized crime. The Committee may also wish to inquire of the author and sponsor to produce data demonstrating the extent of the problem beyond isolated news reports. Finally, the Committee may wish to discuss the fragmentary nature of oversight for secondhand goods dealer and pawnbroker licensees, and whether greater regulation of these licensees is warranted. Separately, the Committee may wish to discuss whether, and to what extent, it is possible that individual hosts of private "cash for gold" parties could unwittingly fall victim to the expanded definitions such that a suburban Tupperware party that dabbles in gold becomes - legally speaking - an organized crime ring. 11)Previous legislation . AB 391 (Pan) Chapter 172, Statutes of 2012, requires secondhand dealers and coin dealers to report SB 762 Page 15 certain information using the electronic reporting system developed by DOJ on and after the date that the system is implemented. AB 1796 (Galgiani) of 2012, would have included in the definition of criminal profiteering activity the unlicensed sale of tangible personal property or other secondhand goods, including gold and other precious metals, without a license. This bill failed passage in the Assembly Public Safety Committee. AB 704 (Ma) of 2011 would have required that a person conducting business as a secondhand dealer to provide specified information to any peace officer upon demand allow for the storage of the item for up to 90 days, and required an impounding agency to satisfy specified requirements regarding impounded property and further would have authorized a nonprofit association composed of 50 or more licensed secondhand dealers to bring an action to enjoin a person from conducting business as a secondhand dealer without being licensed. This bill was held in the Assembly Judiciary Committee. SB 1520 (Schiff), Chapter 994, Statutes of 2000, makes the reporting system for pawned and secondhand property more effective for law enforcement purposes through development of specified reporting categories and reporting in electronic form. REGISTERED SUPPORT / OPPOSITION : Support California Pawnbrokers Association (sponsor) California Police Chiefs Association, Inc. (04/15/13 version) One individual Opposition California District Attorneys Association One individual Analysis Prepared by : Elissa Silva / B.,P. & C.P. / (916) 319-3301 SB 762 Page 16