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Bullying Banks & Disappearing ATMs

finance-panelThe EXPO 2015 “Finance Panel” discussed the hottest topics related to clubs and their money management, especially as it related to “Operation Choke Point”

This year’s new EXPO Money Panel gained instant prominence as the second go-to informational event at EXPO 2015, along side the Legal Panel. Two separate monetary initiatives threaten to involuntarily convert adult nightclubs into non-profit organizations; the Justice Department’s Operation Choke Point and extreme state minimum wage increases.
The panelists were Dave Ericks, of Ericks Consultants, lobbyist for Florida SEA, the state’s ACE chapter, Warren Cato, managing partner of Club Control Systems and Bruce Renard, Executive Director of the National ATM Council, Inc. (NAC). E.D. Associate Publisher Dave Manack moderated.


Ericks started the panel by noting a bill in the Florida legislature, that like several other states, calls for a $15-per-hour minimum wage for club workers. Ericks noted that, of all his clients over the years, the adult nightclub industry is the most adaptable he’s ever seen.

“With all that’s thrown at you, be it zoning, hours of operation, distance requirements and more, you manage to get by. This is the most adaptable industry I’ve ever seen.”
Ericks explained that he hopes the minimum wage Florida adopts will be under $15. Ericks said that in an election year, he’s not sure whether the increase will be to $9, $10 or less, but he’s confident will be under $15.  Ericks doesn’t let Florida SEA take the lead on an issue like minimum wage.

“We have retail associations, chambers of commerce and other groups to take on these big fights,” he noted. “Any issue an adult association gets out in front of isn’t going to play well in the press. And there’s never a shortage of intent by legislators to screw your industry.”

Ericks opened the discussion up to input from club operators elsewhere who might already be dealing with an increased minimum wage.  
Joe Carouba, managing partner of BSC Management, which manages and oversees 10 adult clubs in San Francisco, noted that as well as a $15 minimum wage, starting in 2017, they are dealing with “Healthy San Francisco,” a health care tax of about an additional $1.65 per hour for anyone not part of a club’s ACA (Obamacare) coverage.

“In 2017, we’re going to be at about $22 an hour to hire somebody at minimum wage,” explained Carouba. “We’re lucky it’s a pretty good economy right now in San Francisco so we think we can pass it on through a few price increases, not across the board like some restaurants. Other guys in places where the economy isn’t as robust will have to be more creative. ”

Gary Marlin, Operations Consultant for BSC  added, “Unlike most places, San Francisco doesn’t have a tip-credit minimum wage so we’re paying that full amount. We’re absorbing that entire cost.”

Ericks suggested that if you have an ACE state chapter, hire a good lobbyist and make sure your legislators know who you are and that you’re ready to fight for your rights.
“It will get better; they’ll get the attitude that they should leave you alone,” Ericks said. “And that’s the best thing we can ever expect, to get the legislatures to leave us alone.

The discussion shifted to Operation Choke Point, the DOJ’s heavy-handed effort to strangle pawnshops, third-party payment processors (“TPPPs”), payday and online lenders and adult businesses. Panel moderator Manack explained that adult-related businesses snarled in the net of Operation Choke Point extended beyond those directly providing adult entertainment.

“ED Publications is a publications company, not an adult business,” Manack explained. “Under Operation Choke Point, Bank of America shut our accounts down. We had to move to a local Tampa bank. We know it’s also happened to a lot of you and that’s why we’re here discussing it.”

Warren Cato of Club Control Systems has long been the adult nightclub industry’s largest provider of ATM’s. Cato is intimately familiar with Choke Point, as Regions Bank closed seven of his ATM accounts. Cato, who has taken a leading role in the battle to reign in this governmental strong-arming of legal businesses, addressed some of the opportunities for club operators to make dealing with their banks easier and to make them less vulnerable to obstruction by Choke Point.

“Operation Choke Point is bad enough if you’re in the ATM business, but if you also are in the adult nightclub business, it seems to be a really big double whammy,” noted Cato.
Of the hundreds of adult clubs that have Cato’s ATMs, some own and load their own ATM’s, while others don’t touch their machines. Both types have been impacted by Operation Choke Point.
“If you own and load your own ATMs, it’s important to implement best practices for handling cash you load in your machine,” Cato said. “The government wants to know the source of the cash. Use a separate ATM bank account for each club and don’t deposit your surcharge or anything else there.”

“The guy who says ‘I still want to be able to take money out of my register and put it in my ATM’ is likely to have problems cause that’s what the government’s looking at,” cautioned Cato. “They can’t track where that money’s coming from. He might as well be getting that ATM money from a drug dealer outside the store. Develop cash handling processes for the funds you load into your ATM that allow the government to verify its history. With every ATM processor, you can get a report saying how much is about to be deposited, how much is in the machine and whatever is in your bank. And that total should remain stable unless you add or remove ATMs.

“If you adhere to that process, you’ll give the government a warm, fuzzy feeling about how you’re handling your cash.” Cato cautioned, “If you’re still having issues about ATMs with your bank after doing all that, you can use a third party. I use armored car services or individuals to load ATMs at some locations. While this increases costs, your biggest concern should be not losing your business banking relationship over an ATM.”

Added compliance costs and minimum wage increases are clearly a concern to club operators. One possible way to make up a portion of the escalations is through tax credits. Through his company’s relationship with Emily Jones of Firm Connect, Cato’s clients that have availed themselves of Jones’ services have been able to get tax credits averaging $1,800 per year off of their corporate tax liability for hiring certain categories of workers, including ATM couriers. Jones says roughly one in four who work at least 120 hours annually qualify.

He mentioned another option: a virtual smart safe on your property, provided by the bank. When you make your deposit into the smart safe, your account is immediately credited, as though you had made the deposit at the bank, reducing courier costs.

Bruce Wayne Renard, National Director for the National ATM Council, called for a show of hands to see how many attendees were familiar with Operation Choke Point. When a large number of hands were raised, Renard noted, “That’s a good many, too many. That’s indicative of how serious the problem is.”

Renard explained that Operation Choke Point is part of the Obama administration’s efforts to implement social policies via executive agency actions versus through federal legislation.
Renard continued, “Back in 2013, the Department of Justice (DOJ) quietly launched Operation Choke Point. And it’s been kind of “under-the-radar” since then. By getting banks to choke off disfavored businesses, they can be effectively driven out of business. They initially targeted payday lenders, and ultimately the FDIC generated a list of high-risk business categories including pornography, dating services and services and gun and ammunition dealers.”  

The message this list sent to the banks was to be very careful with these types of businesses, as the banks and their officers and directors can be subject to severe penalties including prison time if they allow a fraudulent scheme to go down involving money laundering, financing of terrorism and the like without having exerted appropriate due diligence to prevent such activities.  

Renard explained that this has led to many clubs and other “risky businesses” receiving calls from their banks providing as little as one-day’s notice that their accounts were being closed. Others received no notice whatsoever, and simply learned when the banks froze their funds without explanation and they started bouncing checks and their credit cards stopped working.
 
In response, NAC had to develop a viable strategy for dealing with bank regulators and banks to prevent legitimate ATM and merchant businesses from being closed for lack of a bank account.  NAC has developed a set of voluntary guidelines that demonstrate transparency and trackability for the ATM vault cash, designed to instill confidence in banks that the ATM funds are “clean” and that no money laundering or other illicit activity is taking place. 
 
Legislation aimed at curtailing Choke Point passed out of the House of Representatives Finance Committee in July. The bill would preclude regulatory agencies from encouraging banks to close accounts without concrete substantiation of fraud. The odds of the bill becoming law at the time of this panel are slim.

The initial feedback to the National ATM Council’s efforts to bring comfort to the banks and bank regulators through its voluntary guidelines has been positive. Renard, an attorney for 35 years, expressed hope that the climate will improve through negotiations and education, but didn’t rule out some form of legal action to address the issue if not effectively corrected by the guidelines.

Larry Kaplan is the Legal Correspondent for Exotic Dancer Club Bulletin, Executive Director of the ACE of Michigan adult nightclub state trade association and a consultant in the sales and purchase of adult nightclubs and adult stores. Contact Larry Kaplan at 313-815-3311 or e-mail kaplanclubsales@gmail.com.
To contribute to the National ATM Council in its efforts to prevent governmental interference in the operation of your ATM’s and your business, go to https://fundly.com/nac-save-our-atm-bank-accounts or call 904-683-6533 or Warren Cato at 800-653-3189. For information on tax credits for certain employees, contact Emily Jones of Firm Connect at emily@summithrpayroll.com.

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