Judge Blocks Corporate Transparency Act

A federal judge in Alabama has ruled that the Corporate Transparency Act, which took effect Jan. 1, is unconstitutional.

U.S. District Judge Liles Burke ruled March 8 that the act, a landmark U.S. anti-money laundering law, is unconstitutional on the grounds that Congress exceeded its powers by enacting the law.

The decision voids any regulatory rulemaking based on the act, which requires certain legal entities, including LLCs, to report Beneficial Ownership Information to the Financial Crimes Enforcement Network.

In his ruling, Burke called the act “congressional overreach,” writing that it “is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.”

“The government says that the CTA is within Congress’ broad powers to regulate commerce, oversee foreign affairs and national security, and impose taxes and related regulations,” he wrote.

“The government’s arguments are not supported by precedent. Because the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”

Small Business Suit

The CTA added millions of businesses with fewer than 20 employees and less than $5 million in annual sales to the list of entities required to report beneficial ownership information to the Financial Crimes Enforcement Network.

The National Small Business Association filed suit in November 2022 to block the new reporting requirement, which is designed to prevent the criminal abuse of anonymous shell companies.

NFIB’s suit argued that the reporting rule violates the Constitution, was unduly burdensome on small firms, violates privacy and free-speech protections, and infringes on states’ rights.

NFIB’s suit argued that the reporting rule was unduly burdensome on small firms, violates privacy and free-speech protections, and infringes on states’ rights.

“The wisdom of a policy is no guarantee of its constitutionality,” Burke wrote in his opinion.

The judge’s ruling only applies to NFIB member companies. Other firms must continue to comply with the act’s reporting requirements.

The U.S. Treasury Department is expected to appeal the decision.