ITIN Compliance: When California’s Unruh Act Meets FinCEN’s Advisory
By Jen Williams
August 13, 2026
It always makes for interesting, and often challenging, decision-making when federal guidance and state law appear to pull in different directions. That is exactly the situation many California financial institutions now face following FinCEN’s recent advisory regarding Individual Taxpayer Identification Numbers (ITINs).
While conflicts between federal regulatory guidance and California law are relatively uncommon, this one presents a genuine ITIN compliance challenge for financial institutions and California-chartered credit unions. Navigating these competing obligations requires careful analysis, thoughtful policies, and close coordination across compliance functions.
What’s the Latest?
On June 5, 2026, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), together with the FDIC, IRS, NCUA, and OCC, issued Advisory FIN-2026-A002. The advisory encourages financial institutions to scrutinize customers who use ITINs as a potential indicator of fraud involving unlawful employment and payroll tax evasion.
ITINs are issued by the IRS to individuals who are not eligible for a Social Security number and exist primarily for federal tax compliance purposes. At the same time, federal guidance now encourages financial institutions to consider the use of ITINs as a potential risk factor in certain fraud schemes.
The advisory focuses on combating organized payroll fraud involving shell companies, labor brokers, payroll tax evasion, and money laundering. According to FinCEN, financial institutions reported approximately $2.5 billion connected to these schemes during 2025.
Importantly, the advisory was issued outside the formal rulemaking process. It does not create new legal obligations or amend existing Bank Secrecy Act requirements. Instead, it encourages heightened scrutiny in certain situations.
Why California Institutions Face a Different Challenge
For California financial institutions, this federal guidance lands squarely alongside one of the state’s strongest civil rights statutes: the Unruh Civil Rights Act (California Civil Code § 51).
The Unruh Act prohibits businesses from discriminating against consumers based on numerous protected characteristics, including immigration status and citizenship. Courts have interpreted the statute broadly, and several decisions have concluded that even legitimate business justifications may not excuse differential treatment based on immigration status.
As a result, what may appear to be prudent risk management under federal guidance could create litigation exposure under California law if institutions are perceived as treating ITIN holders differently simply because they present an ITIN.
The Advisory’s Most Significant Feature
Perhaps the most notable aspect of FIN-2026-A002 is not its objective but its methodology.
The advisory identifies the presentation of an ITIN “in lieu of a Social Security number or valid employment authorization document” when opening an account or obtaining credit as a relevant risk factor that may warrant enhanced due diligence.
It also outlines 18 potential red flags, several of which rely on combinations of customer identification documents and employment industries.
Additionally, the advisory suggests that financial institutions may report suspected illegal employment schemes directly to Immigration and Customs Enforcement (ICE), extending beyond the traditional Suspicious Activity Report (SAR) process. While the advisory cites Executive Order 14406 as authority for this approach, FinCEN expressly acknowledges that the guidance creates no new legal requirements.
Practical Responses for California Financial Institutions
California financial institutions should resist viewing this solely as an AML issue. It presents intersecting considerations involving AML compliance, consumer protection, civil rights law, and litigation risk.
Institutions should consider:
- Reviewing AML and fraud policies to ensure they remain consistent with both federal guidance and California law.
- Coordinating AML, fraud, compliance, and legal counsel before implementing policy changes.
- Carefully documenting the legitimate risk-based factors supporting enhanced due diligence decisions.
- Avoiding policies that could be interpreted as treating consumers differently based solely on ITIN status, citizenship, or immigration status.
Final Thoughts
The FinCEN advisory does not alter California’s Unruh Civil Rights Act. What it does is sharpen an existing tension between federal financial crime guidance and California civil rights protections.
For California financial institutions, thoughtful implementation will be critical. ITIN compliance for financial institutions will require enhanced due diligence that remains genuinely risk-based, consistently applied, well documented, and carefully vetted through legal counsel. As federal priorities continue to evolve, institutions that proactively evaluate these competing obligations will be best positioned to manage both regulatory expectations and litigation risk.
About the Author
Jen Williams
Jen Williams, Of Counsel at SW&M, has an extensive legal background spanning over 20 years. She brings a wealth of expertise in the fields of general credit union law, mergers and acquisitions, field of membership (FOM) expansions and issues, foundation […]
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