A federal judge in Texas granted a temporary reprieve to two small money services operations that had argued that a new Trump administration policy intended to ensnare drug traffickers was instead driving them out of business.
The ruling, handed down late Tuesday, marked the third time a court had rejected a new Treasury Department rule that calls for increased scrutiny of financial service businesses along the southern border, which are already highly regulated. The government in March required businesses in certain ZIP codes in Texas and California to report any transaction larger than $200, along with personal identifying information about the customer.
For decades, the government’s reporting threshold for transactions had been set at $10,000.
In a brief order, Judge Leon Schydlower of the Federal District Court for the Western District of Texas wrote that drug traffickers could simply go outside the targeted areas to make the policy “completely toothless.”
“Innocent businesses can be profoundly disadvantaged if they are located on the ‘wrong’ side of an El Paso street, and thus within a covered ZIP code, vis-à-vis their competitors across the street in an uncovered ZIP code,” he wrote.
Businesses in both states caught up in the policy change were quick to sue. And so far, federal judges have expressed strong skepticism that the lower reporting threshold would achieve the goal of gathering evidence of money laundering by Mexican cartels, or indeed that Mexican cartels are using small businesses to move illicit profits at all.
They have sided with the small business owners who said that new reporting requirements were driving away customers and drowning their tiny staffs in paperwork.
In California, the judge barred the government from enforcing the policy throughout the state’s southern district, exempting all the affected businesses in San Diego and Imperial County. But judges in Texas have been reluctant to extend relief to all businesses in the nearly 20 ZIP codes targeted by the Trump administration.
That forced the owners of the two businesses involved in the case on Tuesday to file a new lawsuit in June, even though both had testified as witnesses in support of the companies that challenged the policy months earlier.
In court, as part of the first Texas lawsuit, the two owners shared stories of working deep into the night and cutting down their services to focus on the rote task of identifying nearly every customer who comes their way to the federal government. Both testified that clients had been spooked by demands that they submit their Social Security numbers and other information to change trivial sums of currency, and that each had seen declines in business.
Andres Payan Jr., one of the owners, who offers some money services at the El Paso gas station he operates, said through his lawyers that the day he testified, an officer at the Internal Revenue Service urgently restarted an audit of his business, which had been sitting idle for two years.
The I.R.S. action raised concerns about witness intimidation, which the judge has ordered the government to explain.
The other owner, Ashley Light, said her family business, Valuta, had operated continuously since her parents founded it in the early 1980s but was approaching a breaking point.
But once again, in keeping a narrow scope, the order on Tuesday meant that other money service businesses in Texas who had not joined any lawsuit will still need to meet the Trump administration’s requirements unless the court intervenes.
Zach Montague covers the federal courts, including the legal disputes over the Trump administration’s agenda.
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