Federal court rules Corporate Transparency Act unconstitutional

March 14, 2024

A federal court in Alabama this month ruled that a federal law designed to stop money laundering but that would put undue burdens on small businesses was unconstitutional.

The National Small Business Association successfully challenged the Corporate Transparency Act, which requires businesses to report owners and beneficial owners to an organization called the Financial Crimes Enforcement Network.

The goal was to cut down on shell corporations and money laundering, but the NSBA said the law was poor policy that unfairly targets small businesses.

“This ruling justifies the concerns of millions of American businesses about how the CTA is not only a bureaucratic overreach, but a Constitutional infringement,” said Todd McCracken, president and CEO of NSBA.

The CTA was passed in 2023 and took effect Jan. 1, 2024.

An estimated 32 million small businesses must register personal information with FinCEN, including uploading photo IDs and sharing home addresses. The Alabama case applies specifically to the 65,000-plus members of NSBA, the plaintiff in the case.

The Justice Department on Monday said it is appealing the ruling.

The NSBA’s challenge to the CTA began in 2022, when the association and Huntsville business owner Isaac Winkles first brought their case before district court.

“While the case was being considered in court, the U.S. Treasury Department’s implementation of the CTA has fallen short of expectations – millions of small-business owners still do not know about the requirements of the CTA,” the NSBA said in a written statement. “The database is ripe for data security issues and confusion which could saddle small-business owners with hefty penalties or even jail time.”

The NSBA also asked Congress to strike down the law in September 2023, sending a memo to the House Committee on Financial Services asking them to pass House Resolution 4035, the Protecting Small Businesses Act, in 2023, which would repeal the CTA.

The bill was authored by Rep. Patrick McHenry (R-NC) and introduced in June 2023.

In the letter signed by McCracken, the NSBA said it supported efforts to curtail money laundering, but urged the government not to deem small businesses “too-small-to-succeed.”

The CTA applies only to businesses with 20 employees or fewer and less than $5 million in sales, McCracken said.

“Ultimately, the CTA is discriminatory in nature,” McCracken said. “The information demanded will be due annually and if a small business employee or owner makes a mistake, or cannot afford a lawyer, accountant, or other expensive counsel, they are punished with tens of thousands of dollars in fines.”

Photo by Carol H. Highsmith

Miles Smith

Miles Smith has more than two decades of communications experience in the public and private sectors, including several years of covering local governments for various daily and weekly print publications. His scope of work includes handling public relations for large private-sector corporations and managing public-facing communications for local governments.

Smith has recently joined the team as a content writer for SPI’s news publications, which include Texas Government Insider, Government Contracting Pipeline and its newest digital product, Government Market News, which launched in September 2023. He graduated from Texas A&M University with a bachelor’s in journalism.

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