A San Diego small business owner has filed a lawsuit against the Trump administration over a new financial reporting requirement, arguing that the government’s order, intended to combat money laundering by Mexican cartels, violates the Fourth Amendment and threatens to financially ruin money services businesses like hers.
Money services businesses, which offer check cashing, money transmitting, foreign currency exchange, and similar services, are already mandated to report all transactions of $10,000 or more to help combat money laundering. However, a new rule that took effect Monday now requires these businesses in 30 targeted ZIP codes in California and Texas—seven of which are located in San Diego County—to report all transactions of $200 and over.
Business owners contend that this change will necessitate submitting reports for every transaction, making the process prohibitively time-consuming. Additionally, it would compel customers to provide sensitive information, such as their names and Social Security numbers, raising concerns that the Trump administration could use this information in its immigration enforcement efforts.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network, known as FinCEN, announced the new “geographic targeting order” last month. The order is aimed at “further (combatting) the illicit activities and money laundering of Mexico-based cartels and other criminal actors along the southwest border.”
Esperanza Gomez Escobar, owner and manager of Novedades y Servicios Plus in San Diego’s Southcrest neighborhood, argues in her lawsuit that the new reporting requirement “will sweep up information about countless everyday transactions” in violation of the Fourth Amendment. Her lawsuit also claims the new order will impose “crushing costs” on targeted businesses and their customers while allowing individuals wishing to evade the reporting requirement to simply go to businesses in nearby ZIP codes not affected by the new rule.
“This cash surveillance order casts a staggeringly wide net but will catch no big fish,” said Rob Johnson, a senior attorney with the public interest law firm Institute for Justice, which is representing Gomez and her business. “To the extent that criminals are moving money in $200 increments, they will just move that money to ZIP codes not covered by the order. But, meanwhile, ordinary people will have their private information suctioned into the government’s database, while small businesses will be destroyed by mountains of paperwork.”
Gomez’s lawsuit seeks to immediately bar FinCEN from enforcing the order and to ultimately have the order struck down and declared unconstitutional.
Defendants named in the lawsuit include FinCEN and its director, Andrea Gacki, as well as the Department of the Treasury, Secretary of the Treasury Scott Bessent, and Attorney General Pam Bondi.
Officials from FinCEN did not respond immediately to a request for comment on the lawsuit. However, government attorneys defended the new rule last week in a similar federal lawsuit filed in San Antonio by the Texas Association for Money Service Businesses.
In that case, the federal judge issued a temporary restraining order Friday, barring FinCEN from enforcing the new rule, stating the plaintiff had demonstrated that it would suffer “immediate and irreparable harm absent emergency injunctive relief, including the threat of business closure, reputational injury, and loss of customers and goodwill.”
While this injunction only applies to the ten specific Texas businesses involved in the plaintiff association, Gomez is hopeful for a similar outcome in her San Diego case.
“This is a family business … and we’ll have to close if this order is enacted,” Gomez stated during a virtual news conference on Tuesday morning.
“It doesn’t make sense that it’s only affecting certain ZIP codes, and not all of them, and certain border cities, and not all of them,” emphasized Gomez’s daughter, Frida Quetzalitl, noting that the new rule does not apply to areas in Arizona or New Mexico.
The impacted ZIP codes in San Diego County include downtown San Diego and several nearby neighborhoods, such as Barrio Logan, Logan Heights, Mountain View, and Southcrest, as well as portions of Clairemont and Mira Mesa. Most of the border areas of San Ysidro and Otay Mesa are also covered, along with some northern parts of Chula Vista.
FinCEN did not elaborate on its reasons for targeting these specific ZIP codes, stating only that the new rule “supports work to counter drug trafficking organization activity and transnational criminal organization activity.”
Gomez’s lawsuit points out that an internal FinCEN memorandum produced in a different case indicated that FinCEN is targeting those ZIP codes based on high proportions of transactions exceeding $10,000, which trigger mandatory “currency transaction reports.”
Johnson, the attorney from the Institute for Justice, argues that this reasoning is flawed.
“There’s no allegation that all of those over-$10,000 transactions are in any way criminal, and even putting that aside, the fact that there are lots of $10,000 transactions isn’t a reason to require this sweeping, burdensome reporting on $200 transactions,” he stated on Tuesday.
In addition to mandatory reporting of transactions over $10,000, money services businesses must also collect and keep some customer information for transactions over $3,000, although they are not required to submit reports for those transactions.
Gomez indicated that the vast majority of transactions her business handles are less than $3,000, and she has never processed a transaction exceeding $10,000 in the five years she has been operating.
“Most Novedades customers are regulars who use our services for perfectly normal, legal things, such as cashing payroll checks, paying rent, and sending money to family,” the lawsuit asserts.
In addition to raising Fourth Amendment concerns, the lawsuit claims that FinCEN’s order violates the Fifth Amendment rights against self-incrimination and violates the Administrative Procedure Act and other federal rules that prevent executive-branch agencies from making policy decisions that should be determined by Congress.
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