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A fence is an individual who knowingly buys stolen property for later resale in a (usually) legitimate market. As a verb, the word describes the behavior of the thief in the transaction: The burglar fenced the radio. This sense of the term came from thieves' slang, first attested c. 1700, from notion of such transactions taking place under defense of secrecy.
The fence is able to make a significant profit because he is able to pay thieves a very low price for stolen goods; thieves agree to this because their alternatives (such as directly soliciting passersby on a crowded street, or selling the goods at a flea market) may present a greater risk of the thief being caught, and will take more time. The fence then disguises the stolen nature of the goods, if possible, and is then able to sell them at or near the usual wholesale price.
Depending on the stolen item, the fence may attempt to remove, deface, or replace serial numbers on the stolen item before reselling it.
Fencing is illegal almost everywhere, usually under a similar rationale as in the United States, where receipt of stolen property is a crime in every state, as well as a federal crime if the property crossed a state line. Occasionally federal agents will temporarily set up a fencing operation in order to let the word spread that a good fence is available in the area, and then trap a number of thieves.
Pawnbrokers have often been associated with fencing, though in many jurisdictions, government ID must be shown in order to pawn an item. In any event, pawnbrokers vigorously resist this characterization.
Money laundering could be described as the fencing of currency.