Judge rules that violate the disclosure provisions of the Corporate Transparency Act

In a blow to the government’s efforts to combat money laundering, a federal court has ruled that the Treasury Department cannot require some small businesses to report personal information about their owners.

Under an article of the 2020 law that came into force on January 1, small and medium-sized enterprises are subject to so-called beneficial owners (individuals who hold a financial interest in the enterprise or who have significant authority over management decisions). ) need to share details. The Corporate Transparency Act, passed by Congress with bipartisan support, was intended to help the Treasury Department’s Financial Crimes Division identify money launderers hiding behind shell companies.

But in a ruling issued late Friday, Judge Lyles C. Burke of the U.S. District Court in Huntsville, Alabama, sided with the law’s critics. They argue that requiring business owners to provide personal data (names, addresses, copies of identification documents) is Congress’ overreach, even if well-intentioned.

“Congress sometimes enacts sensible laws that violate the Constitution,” Judge Burke wrote in a 53-page filing. “This case concerning the constitutionality of the Corporate Transparency Act exemplifies that principle.”

Judge Burke’s ruling prevents the department from enforcing ownership reporting requirements on the National Small Business Association, a plaintiff in the Alabama lawsuit, a nonprofit trade association representing more than 65,000 member companies. Ta.

Lawyers pursuing the Alabama case said over the weekend that they expect the government to quickly request a stay of the injunction by Judge Burke, the 11th Circuit Court of Appeals in Atlanta, or both. Lawyers say the Justice Department will almost certainly appeal the Alabama case to circuit court.

Treasury Department spokeswoman Morgan Finkelstein said the agency is “complying with the court’s injunction.” She referred further questions to the Justice Department, which declined to comment.

As lawyers and transparency experts scrutinized Burke’s opinion, the immediate impact of the ruling on the entire U.S. small business population, which the government estimates to be 33 million, was not entirely clear.

The deadline for submitting data is not until the end of 2024, as companies had one year to comply with reporting obligations for 2023. And, narrowly interpreted, Judge Burke’s decision does not apply to small businesses that are not members. He is the head of the industry group that filed the Alabama lawsuit, meaning most businesses affected by the order must continue to comply.

“This is just going to make things even more complicated for many of our clients,” said Angela I. Gamalski, whose law firm Honigman LLP in Ann Arbor, Michigan, advises companies large and small on compliance and regulatory issues. he said. Some of her clients are planning to wait until the summer to take a closer look at the reporting requirements and their implications, as the filing deadline is not until her December and implementation of the law appears to be in flux. I did.

Advocates for greater transparency denounced the ruling.

Sen. Sheldon Whitehouse, D-Rhode Island, one of the law’s sponsors, said, “This is an extraordinary decision by a single district judge in Alabama, setting precedent against Congress’ constitutional authority.” “It is based on an extremely narrow view that is unsupported.” “I urge the government to promptly appeal the wrong decision and ensure that the transparency requirements of the law are fully and uniformly implemented.”