Federal Judge Pauses New Cash Reporting Rule in California

News Summary

A federal judge has paused enforcement of a cash reporting rule affecting check cashers and currency exchangers in Southern California. The decision stops businesses from having to report transactions over $200, addressing concerns about privacy and the impact on local commerce, especially amid ongoing legal challenges. The rule aimed to fight money laundering linked to drug cartels but has drawn criticism for its burdensome requirements. As businesses struggle, the ruling signals potential shifts in the legal landscape involving government oversight and small business rights.

California – A federal judge has ordered a pause on the enforcement of a new cash reporting rule that affects check cashers and currency exchangers in Southern California. The ruling, delivered by U.S. District Judge Janis Sammartino, specifically pertains to San Diego and Imperial Counties and halts the requirement for these businesses to report cash transactions exceeding $200. This decision comes amidst ongoing legal challenges concerning the rule’s implications for local businesses and customer privacy.

The reporting requirement was established by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in March as a measure to combat money laundering, particularly related to financial activities linked to Mexican drug cartels. Initially, the rule aimed to cover businesses situated within 30 ZIP codes across both Texas and California, with the intention of uncovering potentially suspicious financial transactions.

Esperanza Gomez, the owner of a money transferring business in San Diego, initiated a lawsuit in April against the enforcement of this rule, arguing that it imposes an unnecessary burden on business owners. Gomez claimed that the requirement forced them to monitor their customers closely and unjustly infringe upon their privacy rights without reasonable cause to do so. Following the rule’s enforcement, Gomez reported a drastic drop in business, citing a 50% to 60% decline in customer traffic during the week the rule was put into place.

Cosmetics, electronics, and furniture retailers also reported a decline in sales and foot traffic due to the Rule. Several companies, including Western Union, ceased cash transfers that exceeded the $200 limit as a direct response to the rule’s enforcement.

Gomez’s legal team is pursuing a parallel lawsuit in Texas federal court against the same cash reporting requirement. In a separate legal development, another federal judge in Texas granted a similar injunction, stopping FinCEN from enforcing the rule against ten small money service businesses engaged in litigation over the matter.

Robert Johnson, an attorney representing Gomez and the plaintiffs in Texas, emphasized the damaging ramifications of the rule on businesses, citing a lack of substantial evidence to support the necessity of the reporting requirement. Johnson contended that the $200 threshold for cash transactions constitutes an unconstitutional general warrant in violation of the Fourth Amendment, which protects against unreasonable searches and seizures.

In defense of the rule, the federal government maintains that the reporting requirement is both legitimate and necessary. It is designated to remain in effect for a specific 180-day timeframe within designated high-activity ZIP codes. Katherine Parker, an attorney for the Department of Justice, acknowledged the potential for harm resulting from the rule but affirmed its intended purpose of curbing illicit financial activity.

Judge Sammartino’s ruling highlights critical inconsistencies in the government’s documentation regarding the implementation of the order, raising legitimate concerns about its legitimacy. Such discrepancies have played an essential role in the judge’s decision to suspend enforcement in Southern California.

As the legal battles surrounding the cash reporting requirement continue, the ruling is expected to impact many small businesses operating along the U.S.-Mexico border. Owners like Gomez remain hopeful that the ultimate resolution will favor the protection of their businesses and customer rights against unwarranted government surveillance.

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