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03.05.2024 Legal News

Corporate Transparency Act: Northern District of Alabama Issues Declaratory Judgment Finding that Corporate Transparency Act is Unconstitutional

On March 1, 2024, the United States District Court for the Northern District of Alabama, Northeastern Division granted summary judgment in favor of the plaintiffs, finding that the Corporate Transparency Act (the “CTA”), which was enacted into law on January 1, 2021, as part of the Anti-Money Laundering Act of 2020,1 is unconstitutional.

The plaintiffs argued that the CTA violated their First, Fourth and Fifth Amendment rights and that Congress did not have the authority to enact it. The court addressed Congress’ authority to enact the CTA and ruled on that basis alone without reaching the First, Fourth and Fifth Amendment arguments. While the U.S. Government argued that the CTA was a permitted exercise of foreign affairs and national security authorities, the authority to regulate interstate and foreign commerce, and the taxing power, the court found that Congress did not have the authority to enact the CTA under any of these rationales.

In connection with its ruling, the court issued an injunction prohibiting the U.S. Government from enforcing the CTA or its implementing regulations against the plaintiffs, the National Small Business Association and Isaac Winkles, the individual plaintiff in the case.3 FinCEN has acknowledged the ruling and confirmed that it will not enforce the reporting requirements against Mr. Winkles, members of the National Small Business Association as of March 1, 2024, and the National Small Business Association itself.4 The U.S. Government is expected to appeal the ruling to the 11th Circuit Court of Appeals, and if it does not prevail there, it can be expected to appeal to the U.S. Supreme Court.

Note, the injunction is very narrow; it does not appear to apply to anyone other than the plaintiffs so other reporting companies are still subject to the reporting requirements under the CTA, including the obligation to report beneficial owner and company applicant information for any reporting company formed on or after January 1, 2024 within 90 days of the date of formation and the obligation to report beneficial ownership information for reporting companies formed on or before December 31, 2023 by January 1, 2025.

Williams Mullen will continue to monitor the impact of this ruling and any ensuing appeals along with FinCEN’s implementation of the CTA, and we will provide updates and alerts when warranted.   

1William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, 134 Stat. 3388 §§ 6001-6511 (2020).
2National Small Business United, dba National Small Business Association, et al., v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al., Case No. 5:22-cv-1448-LCB (March 1, 2024, N.D. Alabama). A copy of the court’s opinion is available here.
3A copy of the injunction is available here.
4See the FinCEN release here.