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Judge Enjoins Treasury from Requiring Some Companies to Comply with Corporate Transparency Act Reporting Requirements

S.J. Steinhardt
Published Date:
Mar 4, 2024

iStock-157679087 Treasury Department

A federal judge in Alabama has ruled that the U.S. Treasury Department cannot require some small businesses to report personal details about their owners under the terms of the 2021 Corporate Transparency Act, The New York Times reported.

The law, which took effect on Jan. 1, 2024, is intended to combat money laundering, corruption and other forms of criminal activity by requiring companies to share details about their beneficial owners. Critics have argued that asking a company’s owners to present personal data, such as names, addresses and copies of their identification documents, was a case of congressional overreach.

“Congress sometimes enacts smart laws that violate the Constitution,” wrote Judge Liles C. Burke of the U.S. District Court for the Northern District of Alabama in his 53-page filing, the Times reported. “This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.”

Judge Burke noted that the government offered three sources of constitutional authority for Congress’ enactment of the Corporate Transparency Act: its foreign affairs powers, its Commerce Clause authority and its taxing power. But he found that the legislation falls outside all three sources of Congress' powers.  He concluded, "The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers."

Judge Burke’s ruling prevents Treasury's criminal-enforcement bureau, the Financial Crimes Enforcement Network (FinCEN), from enforcing the ownership reporting requirements with regard to the plaintiffs in the case: the National Small Business Association, a nonprofit trade group that represents more than 65,000 member companies, and an individual named Isaac Winkles who is an NSBA member and owner of two small businesses.

The immediate impact of the ruling for the universe of small businesses in the United States, which the government estimates to be 33 million, was not entirely clear, according to the Times.

“This has only made it more complicated for a lot of my clients,” said Honigman LLP attorney Angela I. Gamalski, who advises large and small corporations on compliance and regulatory matters, in an interview with the Times. She said that some of her clients planned to wait until the summer to delve into the reporting requirements and what they meant, given that the filing deadline is not until December and the enforcement of the law seemed to be in flux.

One congressional supporter of the law criticized the ruling.

“This is an aberrant decision issued by a lone district judge in Alabama, based on an extraordinarily narrow view of Congress’s constitutional powers that is unsupported by precedent,” said Sen. Sheldon Whitehouse (D-R.I.), the Times reported. “I would urge the government to appeal quickly to correct the erroneous decision and ensure the law’s transparency requirements can be fully and uniformly implemented.”

To become familiar with the guidance for addressing anti-money laundering compliance challenges, attend the Foundation for Accounting Education's Anti-Money Laundering Conference on June 11.

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