The Federal Government Tried To Spy on Your Financial Transactions. A Texas Court Just Said No.

Let’s say you’ve worked hard, saved money, and decided to buy a house to rent out. You want to purchase it outright, with cash, through an LLC to save thousands on financing costs and limit your personal liability. You’re not laundering drug money. You’re not funneling proceeds from some shadowy foreign government. You’re doing exactly what millions of Americans do every year for perfectly boring, legitimate reasons.

Under a sweeping rule finalized by the Financial Crimes Enforcement Network (FinCEN) in 2024, that kind of transaction would be automatically treated as “suspicious” and reported to the federal government. The rule would affect between 800,000 and 850,000 transactions per year, at a compliance cost of over half a billion dollars annually.

Not so fast, says a federal court in the Eastern District of Texas. 

In March, Judge Jeremy Kernodle held in Flowers Title Companies v. Bessent that FinCEN had exceeded its authority. The court vacated the rule entirely, wiping it off the books for everyone. 

The Bank Secrecy Act authorizes FinCEN to require reporting of “any suspicious transaction relevant to a possible violation of law.” FinCEN argued that nonfinanced real estate transfers to entities and trusts are categorically “suspicious” because some bad actors have used them to launder money. The agency cited a statistic that suggested 42 percent of covered transactions involved parties who had been flagged for supposedly suspicious transactions elsewhere.

The court was unpersuaded. As Kernodle put it, just because some bad actors have conducted nonfinanced real estate transactions doesn’t make all such transactions categorically suspicious. He also noted that banks may be overreporting supposedly suspicious transactions to begin with. And the 42 percent figure proved to be far less than FinCEN claimed: It came from a limited sample of transactions, not a representative national sample. 

As a fallback, FinCEN pivoted to a more general provision of the Bank Secrecy Act, which allows it to require financial institutions to maintain “appropriate procedures, including the collection and reporting of certain information.” But the court rejected that too, since accepting it would let the agency circumvent the very limits Congress imposed.  

The plaintiff at the center of the ruling is Celia Flowers, who spent years building her own title company before buying her first agency in 1993. Today, she and her daughter, Erica Hallmark, own and operate Flowers Title Companies, licensed in more than 80 counties across Texas and serving thousands of property buyers every year. They are the kind of small, family-owned business that politicians in both parties claim to champion.

Under FinCEN’s rule, they would have been required to collect and report pages of detailed personal information on every client who paid cash. Compliance would have meant new procedures, new staff time, new legal costs, and the constant threat of severe penalties for any inadvertent mistake. Worse, they would have been conscripted by the federal government into performing surveillance on their own clients. That’s a strange reward for a lifetime of entrepreneurship. So they challenged the rule in federal court, represented by the Pacific Legal Foundation, and won.  

Preventing money laundering may be a worthy goal, but it doesn’t justify treating every American who buys property in cash or holds it through an LLC as a presumptive criminal. These are ordinary people making sensible financial decisions, not money launderers. 

Where to draw the line on reporting requirements is a policy judgment for Congress, not for FinCEN. Congress has not given the agency the power it claims here, and the court was right to say so.

The Trump administration may still appeal the ruling. Not only is it important to affirm the decision striking down this rule, but also to affirm that statutes shouldn’t give federal agencies a blank check to pursue whatever regulation they find convenient. 

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