A US District Court for the Eastern District of Texas has issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA), questioning its constitutionality and impact on small businesses. The CTA, enacted as part of anti-money laundering efforts, requires companies to disclose beneficial ownership information to a federal database.
The court’s reasoning, led by Judge Mazzant, highlighted concerns over constitutional boundaries, compliance costs, and data misuse. The plaintiffs argued that the act infringes on First Amendment protections for speech and association, while also raising privacy concerns under the Fourth Amendment.
The nationwide injunction applies across 32.6 million businesses in the US, with the court noting that this affects both companies that have filed with FinCEN and those that haven’t. Businesses must now carefully evaluate their next steps regarding CTA compliance.
Potential actions by a new administration to limit or halt enforcement include revisiting regulations, allocating fewer resources for oversight, issuing policy guidance, and collaborating with Congress to repeal the act. However, these measures do not eliminate statutory obligations under the CTA.
Businesses should pause compliance efforts if they have filed with FinCEN, monitor developments, protect data, and consider consulting legal counsel. Those that haven’t filed may delay action until further guidance or court decisions are made.
The decision raises broader questions about federal regulation in combating global financial crimes and could set a precedent for federalism cases. The ruling serves as a reminder of the judiciary’s role in checking federal overreach, even when well-intentioned policies are at stake.
Source: https://www.forbes.com/sites/matthewerskine/2024/12/04/court-blocks-corporate-transparency-act-a-win-for-federalism