The U.S. Treasury's Financial Crimes enforcement network (FinCEN) proposed the Corporate Transparency Act (CTA) in 2021 as part of the National Defense Authorization Act, aimed to combat money laundering and corporate fraud by mandating that companies report information on their beneficial owners. Effective January 1, 2024, the law requires most corporations, limited liability companies, and other entities registered to do business in the Unites States report information about their beneficial owners or those who control or own the company to FinCEN. The rule was created to increase transparency in the U.S. financial system and heighten scrutiny on anonymous shell companies. We previously provided guidance on beneficial ownership reporting requirements.
In November 2022, the National Small Business Association (NSBA)
filed suit trying to block the new law. The group contended that
the new rules violated the U.S. Constitution, as they argued these
rules are unduly burdensome on small firms, violate privacy and
free speech protections, and infringe on the states' powers to
govern businesses.
On Friday, March 1, 2024, U.S. District Judge Liles C. Burke in
Alabama deemed the statute unconstitutional, denouncing it as
"congressional overreach" and in his opinion wrote that
the Act "cannot be justified as an exercise of Congress'
enumerated powers."
FinCEN will continue to implement the CTA while complying with the court's order but will not enforce the CTA against the plaintiff in the Alabama District Court case or against the NSBA and its members as of March 1, 2024. Forty percent of NSBA's 60,000 members were already exempt from filing the beneficial ownership information due to falling under one of the exemptions in the CTA. In comparison, it is estimated that approximately 40,000 small businesses will be affected by the ruling compared to the 30 million businesses that FinCEN estimates will be required to report business ownership information in 2024. Unless the Treasury Department issues further guidance, qualifying businesses must still comply with reporting requirements, excluding NSBA members and those eligible for exemption.
Melanie Murray, law clerk and 3rd year student at Cleveland State University College of Law, contributed to this article.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
