Corporate Transparency Act Declared Unconstitutional
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APPLIES TO All Entities Formed or Registered to Do Business in the U.S. (Unless Specifically Exempt) |
EFFECTIVE March 1, 2024 |
QUESTIONS? Contact HR On-Call |
Quick Look
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Discussion
On March 1, 2024, in National Small Business United v. Yellen, a federal district court in the Northern District of Alabama ruled the Corporate Transparency Act (CTA) is unconstitutional. The CTA is part of the Anti-Money Laundering Act of 2020. The CTA requires certain corporations, limited liability companies, and other similar entities registered to conduct business in the United States to report personal identifying information about owners or control persons. The purpose is to discourage the use of shell companies by money launderers and other illicit actors. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) was tasked with enforcing the CTA and issued implementing regulations effective January 1, 2024.
Here, the National Small Business United, doing business as the National Small Business Association (NSBA), and Isaac Winkles, a major shareholder of an NSBA member, argued the CTA was unconstitutional and exceeded Congress’ authority. The plaintiffs sought an injunction preventing the CTA from being enforced against them. The court agreed and ruled the CTA exceeded Constitutional limits placed on Congress. Amongst the court’s rationale was that Congress’ concerns over foreign money laundering and national security interests were not sufficient enough to justify regulating the activities of corporations which are established by state law. The mere act of incorporating under state law did not implicate engaging in interstate commerce.
The ruling in this case is limited and only applies to the NSBA. The U.S. Government is also appealing this ruling. Other entities should note they are still subject to the CTA reporting obligations and deadlines. Depending on the ultimate resolution of this case and the status of other pending challenges, employers should consult with their legal counsel to see if the ruling(s) affect their reporting obligations under the CTA.
Action Items
- Consult with legal counsel regarding reporting obligations under the CTA.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase