Treasury Department Surveillance at the Southern Border Faces Fourth Amendment Challenges

A new FinCEN rule forced small money services businesses to collect personal data on nearly every customer transaction. Lawsuits claim this violates the Fourth Amendment.

Valuta Corporation, a money services business (MSB) based in El Paso, Texas, has been run by Ashley Light's family for over 40 years. The first MSB licensed in Texas, Valuta provides money exchange, check-cashing, and transaction services for residents who frequently travel between Texas and Mexico. Unfortunately for Valuta, it happens to have the wrong ZIP code for an MSB operating on the southern border.

In March, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) issued a geographic targeting order (GTO) that quietly turned MSBs along the U.S.-Mexico border into surveillance hubs. The order required MSBs in specific ZIP codes along the Texas and California borders to file a currency transaction report (CTR) for any cash transaction over $200.

Under the Bank Secrecy Act (BSA), financial institutions are already required to file reports on cash transactions over $10,000. The BSA also authorizes the Treasury Department to impose additional reporting requirements to detect and prevent money laundering. Reports are required for bank checks, cashier's checks, money orders, or traveler's checks over $3,000, and for foreign currency exchanges over $1,000.

FinCEN's new GTO, effective April 14, lowered that threshold to $200, meaning Light and other MSB operators must now collect a customer's identifying information, including their Social Security number, for any cash transaction above that amount.

Following the rules has meant "crushing paperwork obligations," according to the complaint filed by the Institute for Justice (I.J.). Since the GTO was issued, Valuta has filed more than 53 CTRs per day. Completing a CTR under FinCEN's new regulation takes approximately 20 minutes, Light estimates. This strains daily operations and frustrates customers who are asked to provide personal details for small transactions.

"We had to shut off our MoneyGram services for about a month just because we couldn't keep on top of it," Light says. "We took a big hit for that."

A missed CTR or "willful violation" of FinCEN's order could result in a civil fine of $71,545 for each violation or criminal penalties, which range from a fine of $250,000 to five years in prison.

Senior I.J. attorney Andrew Ward describes the order as a "checkerboard of ZIP codes that doesn't make any sense." He adds, "FinCEN snooping on everyone's transactions violates the Fourth Amendment, which requires a warrant. The argument that knowing everything prevents more crime is impermissible."

In a complaint filed in the U.S. District Court for the Western District of Texas, I.J. argued that the GTO violates the Fourth Amendment and imposes undue burdens on businesses. The complaint also claims FinCEN violated the Administrative Procedure Act by arbitrarily selecting ZIP codes and failing to follow proper notice-and-comment procedures.

In May, Judge Fred Biery granted I.J.'s motion for a preliminary injunction, exempting 10 San Antonio businesses that are currently members of the Texas Association of Money Services Businesses from the GTO. He also found that the plaintiffs "demonstrated serious irreparable harm, including the destruction of Plaintiffs' businesses, loss of reputation and goodwill." A judge in the Southern District of California issued a similar ruling in May for businesses located in the district.

However, FinCEN has not backed down. The original order, set to expire September 9, was reissued on September 8 with a $1,000 reporting threshold and a 30-day filing window, and expanded coverage to include Arizona and a broader portion of Texas. The Treasury Department also proposed a survey to "gather information on the direct compliance costs" of the GTO.

Light calls the revised order a "validation" of her concerns and says the regulations seem "thrown together." Ward says the $1,000 threshold doesn't change the order's illegality: "They just don't have legal authority to issue it. When a court says something that an agency did was unlawful, you just get rid of it for everybody."

I.J. has filed three cases against the GTO, each with a parallel appeal because preliminary injunctions are immediately appealable. In San Antonio and San Diego, cases are paused pending appellate decisions, while the El Paso case proceeds and plaintiffs await a final ruling.