08 March 2024

Federal District Court Holds Corporate Transparency Act Unconstitutional As Applied Against the NSBA

As reported in a previous alert, the Corporate Transparency Act (“CTA”), enacted on January 1, 2021 and effective January 1, 2024, directs the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) to establish a nationwide database of beneficial ownership of certain corporations and other legal entities.  The seminal purpose of the CTA is to give FinCen, an arm of the U.S. Treasury Department, an additional tool to prevent money laundering, financial crimes, and related illegal activity in the U.S.’s financial system that are conducted through the veil of one or more entities.

Since the enactment of the CTA, many small businesses have been concerned about the amount of effort needed to comply and the security of information reported. In this vein, the National Small Business Association filed suit against the United States Treasury in November 2022, shortly after the enactment of the CTA, seeking a permanent injunction against enforcement of the CTA on the grounds that it is unconstitutional.

On March 1, 2024, in National Small Business United, d/b/a the National Small Business Association, et al. v. Yellen, et al., the U.S. District Court for the Northern District of Alabama ruled in favor of the Plaintiffs, holding that the CTA was unconstitutional because it exceeded Congress’ enumerated powers.  []

In response to the Federal Court’s ruling, FinCEN issued a release on March 4, 2024 indicating it would comply with the Federal Court’s order and would not enforce the CTA against the Plaintiffs in that action, including members of the NSBA as of March 1, 2024. Importantly, FinCen makes no mention in its release of ceasing enforcement against any parties other than the Plaintiffs.  []

In light of the Federal Court’s ruling, many believe the CTA no longer applies to them.  That is likely an incorrect interpretation.  Generally, because the Court enjoined the government from applying the CTA to the Plaintiffs in the case specifically and did not issue a national injunction, entities not involved in the litigation will likely need to continue to comply with the CTA. You should consult with your attorney to determine whether the Court’s opinion and injunction against enforcement of the CTA applies to you.

The U.S. Department of the Treasury likely will appeal the Court’s order and ask for a stay pending appeal.

It is also possible that this ruling will result in lawsuits in other districts.

Finally, it is possible that states will enact their own version of the CTA, which do not appear to be prevented by Court’s ruling. New York is an example of one such state that has passed its own version of the CTA.

Please contact your Miller Johnson attorney or any one of the Miller Johnson CTA task force members listed to to the left if you have questions about this alert.