Federal District Court Strikes Down CTA as Unconstitutional
The Lawsuit
The National Small Business Association (NSBA), a non-profit representing over 65,000 businesses across the United States, filed a lawsuit against the US Department of the Treasury and Treasury Secretary Janet Yellen. They claimed that the Corporate Transparency Act’s mandatory disclosure rules went beyond Congress’s authority outlined in Article I of the US Constitution and infringed upon the First, Fourth, Fifth, Ninth, and Tenth Amendments.
The Arguments
The plaintiffs argued that the Corporate Transparency Act (CTA) burdens small businesses unjustly by requiring them to disclose highly personal information about their owners to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the United States Department of the Treasury responsible for combating money laundering and other financial crimes through the collection and analysis of financial intelligence. Further, they argue that this requirement is an excessive and unconstitutional demand on American citizens not suspected of any wrongdoing.
The Treasury and FinCEN endorse the Corporate Transparency Act, claiming it aligns with Congress’s authority under the Commerce Clause and the Necessary and Proper Clause. Their counterarguments include the CTA promoting the transparency necessary to prevent money laundering and terrorist financing. Additionally, proponents of the CTA believe it safeguards the nation’s financial system.
The Verdict: CTA as Unconstitutional
On March 1, 2024, in the case of National Small Business United v. Yellen, Judge Liles C. Burke from the US District Court for the Northern District of Alabama declared the CTA as unconstitutional. In summary, the judge stated in a 53-page ruling that Congress does not have the power to mandate companies to reveal personal stakeholder information to FinCEN.
The decision has temporarily halted the implementation of the Corporate Transparency Act for the plaintiffs, including Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association. Therefore, those individuals and entities are not required to report beneficial ownership information to FinCEN at this time. However, this ruling could potentially influence the reporting requirements for many business entities in the United States. For this reason, business owners and their advisors must keep an eye on evolving regulations as this case and similar ones progress through the appeals process.
Business owners, don’t navigate these CTA uncertainties alone. Trust our legal expertise to guide you through evolving regulations, and schedule your complimentary consultation today.