SAN DIEGO (CN) — Last month, the federal government issued a new rule mandating money service businesses in 30 different ZIP codes in the Southwest report all transactions over $200 to the federal government.
The Financial Crimes Enforcement Network says the rule was enacted to uncover evidence of money laundering and other financial transactions by Mexican drug cartels.
But in a lawsuit filed on Tuesday in San Diego federal court, a small money transferring business in San Diego claimed that the order will not only burden them with mountains of unnecessary paperwork but also force them to surveil their customers without the government providing any probable cause to suspect them of any wrongdoing.
“Esperanza wants to keep her private life private. She has a right as an American to her privacy. Esperanza fears that if the government can see her private financial transactions, it can see her familial and personal affiliations, her interests, and can even profile her beliefs and thoughts,” wrote Esperanza Gomez Escobar, the owner of Novedades y Servicios, in her complaint.
Gomez Escobar describes her business as a small and independently run shop that provides money transfers, money orders and check cashing services to local San Diegans to do perfectly legal things, like cash payroll checks, pay rent or send money to family.
Before the FinCEN order went into effect on Monday, money service businesses like Gomez Escobar’s had to collect customers’ information for transactions over $3,000 and report all cash transactions over $10,000 to FinCEN using a form called a Currency Transaction Report.
Most customers’ financial transactions range from $300 to $450, Gomez Escobar writes. With each report taking approximately 24 minutes to complete, she might have to hire a full-time employee just to prepare reports, which she can’t afford, she writes.
In the meantime, she fears customers will just use another money service business in a nearby ZIP code that wasn’t included in the enforcement zone.
Of the 30 ZIP codes included in the order, 19 are in Texas, while 11 are in California, affecting 1.2 million people who live in that area.
Because the ZIP codes are noncontiguous and noticeably excludes any ZIP codes in border communities in Arizona or New Mexico, the idea that the government enacted this rule to ferret out cartel money laundering in increments of $200 is implausible since cartel members could just travel to money service businesses in another ZIP code to skirt the new rule, said Robert Johnson of the Institute For Justice, one of Gomez Escobar’s attorneys.
“Burying legitimate businesses in mountains of paperwork isn’t a legitimate way to fight crime,” added Betsy Sanz of the Institute For Justice, another one of Gomez Escobar’s attorneys.
Neither is “reaching into very personal information of very average people in this very sweeping way… particularly when there isn’t any suspicion; here, it’s just a dragnet,” she added.
Gomez Escobar claims the order violates the Fourth Amendment because it’s a general warrant that the government is using to sweep up information about private cash transactions, which amounts to an unreasonable search without individualized suspicion of wrongdoing or probable cause.
“Under the Fourth Amendment, if the government wants to investigate a crime, they have to get a warrant,” Johnson said. “They haven’t gotten a warrant, and they haven’t stated probable cause. That violates the Fourth Amendment.”
Gomez Escobar also claims the order violates the Fifth Amendment since it conscripts businesses to be agents of the government in gathering information from their customers in violation of their right against self-incrimination.
The order also violates the nondelegation doctrine of the Constitution, which grants policy decision-making power to the legislature, not executive agencies.
“The statute under which FinCEN purported to act when issuing the Border GTO, 31 U.S.C. § 5326, does not articulate any intelligible principle to be followed when issuing geographic targeting orders. Instead, it grants open-ended authority for executive officials to issue any geographic targeting order that they find necessary to implement the anti-money laundering laws — granting executive officials unfettered discretion to determine the businesses, geographic areas, reporting thresholds, and reports that should be required,” Gomez Escobar writes.
Gomez Escobar, an American citizen, uses her own business to send cash to her mom and siblings in Mexico.
With this new order in effect, she now fears that she, as a business owner and as an individual citizen, is under threat.
“Esperanza also fears that the government will make a mistake and come after her with no basis. She fears she will mistakenly be put on a list of potential criminals, when in fact she has done nothing wrong, either as an individual or a business owner,” she wrote.
Representatives of FinCEN did not immediately respond to a request for comment.