Correct. However, this man was not leaving the country. If he had been they could have arrested him for not declaring and everything would have been fine and dandy.
But since they did not he was doing something perfectly legal which is travel inside the country with large amounts of cash. It may not be the smartest thing but it is 100% legal.
You point about how we do not know the nationality of the person is taken but not perhaps in the way that you might think. While you and I would have kicked up a fuss that would have registered at least a six on the Richter Scale if you are from someplace like Venezuela you might have reflexively done what you do there when the police take your stuff. Walk away grateful that you still have your life.
Thanks for the info - I missed the part about it being a domestic flight...it do change things.