Corporate Transparency Act - An Update - IMPORTANT

IMPORTANT INFORMATION FOR ALL SMALL BUSINESS OWNERS: 

The Corporate Transparency Act (CTA), enacted by Congress in 2021, aimed to address serious issues such as money laundering, financing of terrorist activities, and tax evasion. However, the National Small Business Association (NSBA) has filed a brief with the Eleventh Circuit, urging it to uphold a lower court’s finding that the CTA is unconstitutional. This move is accompanied by legislative efforts to repeal the law.

The Intent and Requirements of the CTA

The CTA mandates that specified business entities must file beneficial ownership information about their owners, officers, and other control persons with the Treasury’s Financial Crimes Enforcement Network (FinCEN). These initial reporting requirements took effect in January, with penalties for noncompliance including substantial fines and imprisonment.

Constitutional Concerns

The NSBA argues that the CTA’s reporting requirements compel US citizens and residents to report sensitive personal information, violating their constitutional rights. An Alabama federal district court concurred in March, ruling that Congress had overstepped its foreign affairs, commerce, and tax powers in enacting the CTA. Consequently, the court enjoined enforcement of the CTA’s beneficial ownership information filing requirements for NSBA members, though all other business entities must still comply. THIS IS IMPORTANT - ALL SMALL BUSINESSES FOR THE MOST PART ARE REQUIRED TO COMPLY.

The Appeal and Fourth Amendment Issues

The case is now on appeal before the Eleventh Circuit. NSBA’s attorneys argue that the district court correctly found the CTA exceeds Congress’ Article I powers. They also contend that the CTA violates the Fourth Amendment’s protections against unreasonable searches and seizures. According to the NSBA, requiring businesses to submit beneficial ownership information for law enforcement purposes constitutes a "search." They argue that the CTA is essentially a workaround to the Fourth Amendment’s warrant requirement, facilitating the fight against financial crimes more efficiently but unconstitutionally.

Legal Precedents and Arguments

The NSBA’s brief draws a parallel to the 1979 US Supreme Court case Brown v. Texas, where the Court struck down a state statute that allowed police to detain individuals and require their names and addresses without a specific basis for suspicion. The NSBA argues that the CTA similarly violates constitutional protections by demanding sensitive information without specific suspicion of wrongdoing.

Diverging Opinions

Thomas Lee, co-author of the NSBA brief, asserts that collecting massive amounts of data from millions of law-abiding small-business owners is not only unconstitutional but also ineffective for addressing law-enforcement and national-security threats. Conversely, Zorka Milin of the Financial Accountability and Corporate Transparency (FACT) Coalition defends the CTA, stating that the law is within Congress’ powers and that the information required is routine and non-incriminatory. The FACT Coalition, along with other organizations and subject matter experts, has filed amicus curiae briefs supporting the CTA’s constitutionality.

Legislative Efforts to Repeal the CTA

Amid these legal challenges, legislative efforts are also underway to repeal the CTA. Representative Warren Davidson (R-OH) introduced a bill (HR 8147) to repeal the CTA, followed by Senator Tommy Tuberville (R-AL) with a Senate bill (S 4297). These lawmakers argue that the CTA unfairly targets small business owners and imposes severe penalties for noncompliance, including up to two years of jail time and fines of up to $10,000 per violation.

Davidson criticizes FinCEN for violating the personal privacy of American business owners by mandating the disclosure of sensitive information. Tuberville echoes this sentiment, highlighting the unprecedented intrusion into personal privacy and the severe penalties for noncompliance.

Conclusion

As the Eleventh Circuit considers the appeal, the debate over the CTA’s constitutionality and its impact on small businesses continues to intensify. The outcome of this case will have significant implications for the balance between financial transparency and constitutional protections.

URLs

National Small Business Association 

Financial Crimes Enforcement Network (FinCEN) 

FACT Coalition