Federal Court Suspends Cash Reporting Rule in California

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A federal court has ruled to suspend the cash reporting requirement affecting businesses in California.

News Summary

A federal court in California has halted enforcement of a controversial rule requiring check cashers and currency exchangers to report cash transactions over $200. This ruling by U.S. District Judge Janis Sammartino affects San Diego and Imperial Counties, where businesses faced significant customer transaction declines due to the new surveillance requirement. The rule was intended to combat money laundering linked to drug cartels, but it has sparked legal challenges and concerns over business impacts. The suspension offers temporary relief as discussions regarding regulatory measures continue.

California – A federal court has ordered the government to suspend enforcement of a controversial rule requiring check cashers and currency exchangers along the Mexican border to report cash transactions exceeding $200. This ruling was issued by U.S. District Judge Janis Sammartino in San Diego and applies specifically to San Diego and Imperial Counties.

The reporting requirement was introduced by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in March as a measure to combat money laundering and financial transactions associated with Mexican drug cartels. The rule affected businesses in 30 ZIP codes across Texas and California, which were targeted to uncover potential suspicious financial activities.

The lawsuit that led to the ruling was filed by Esperanza Gomez, owner of a money transferring business in San Diego. Gomez claimed that the requirement imposed an undue burden on business owners, necessitating the surveillance of customers without probable cause. Following the enforcement of the rule, Gomez reported a steep decline in customer transactions, citing a drop of 50% to 60% during the week it was in effect. In a related development, Western Union also ceased cash transfers exceeding $200 due to the enforcement of the rule.

Gomez’s case is part of a broader legal challenge, as her attorneys are also involved in a parallel lawsuit in federal court in Texas against the same reporting requirement. Notably, a separate judge in Texas previously issued an order halting the enforcement of the rule against ten small money service businesses engaged in a similar legal battle.

Robert Johnson, an attorney representing both Gomez and the plaintiffs from Texas, emphasized the detrimental effects of the rule on businesses, referring to extensive documentation that lacked evidence of the targeted financial activities. Johnson argued that the $200 threshold essentially constituted an unconstitutional general warrant, violating the Fourth Amendment. The Fourth Amendment protects citizens against unreasonable searches and seizures.

Despite the legal challenges, the federal government insists that the reporting rule is legitimate and appropriate for specific high-activity ZIP codes over a defined 180-day period. Katherine Parker, an attorney representing the Department of Justice, acknowledged the possibility of harm stemming from the rule but maintained that its implementation was warranted to address serious concerns regarding unregulated cash transactions.

Judge Sammartino expressed concern about inconsistencies in the government’s documentation regarding the order, which raised questions about its justification and legitimacy. The ongoing discussions surrounding the enforcement rule reflect a complex interplay between regulatory efforts aimed at curbing financial crimes and the implications of such measures on legitimate businesses operating in affected areas.

The legal landscape remains dynamic as businesses and customers await further developments. The suspension of the enforcement of the cash reporting rule may provide temporary relief for the check cashing and currency exchanging sectors in Southern California, but the long-term implications of the regulation and its challenges could reverberate beyond the state lines into Texas and potentially influence similar policies nationwide.