On March 1, 2024, the United States District Court for the Northern District of Alabama Northeast Division (“Court”) ruled the Corporate Transparency Act (“CTA” or “Act”) to be unconstitutional. The CTA, which was enacted on January 1, 2021 and which went into effect on January 1, 2024, directs the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) to create a national database of beneficial owners of certain business entities. By enacting the CTA, Congress aimed to prevent financial crimes, such as money laundering and tax evasion, which are often committed through shell companies.
The plaintiffs in this case—the National Small Business Association (“NSBA”) and one of its members—sought a permanent injunction against the implementation of the CTA and FinCEN’s reporting rules. Judge Liles C. Burke ruled that the CTA is unconstitutional because it “exceeds the Constitution’s limits on the legislative branch” and fails the “necessary and proper” test. Moreover, the Court ruled that the CTA “is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.” In its decision, the Court granted the Plaintiff’s motion for summary judgment and denied the defendant’s motion to dismiss or alternative cross motion for summary judgment.
Although the decision appears to be directed and applicable to only the Plaintiffs, it is yet unclear what the exact implications are with respect to continued compliance by those companies that are not a party to this case. We will continue to monitor this decision and provide updates.
You can reach Jason Marx at jmarx@mblawfirm.com or call 973-607-1271