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Update on the Corporate Transparency Act and Recent District Court Ruling

Co-Author: John Koechel

The Corporate Transparency Act (“CTA”), passed in January 2021, aims to combat money laundering, terrorist financing, and other illicit activities by requiring certain companies to disclose specific information about their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). In response to the passage of the CTA, the National Small Business Association (“NSBA”) raised concerns about the CTA’s burden on small businesses, arguing that the reporting requirements would be overly burdensome and unconstitutional.

On March 1, 2024, in the case of National Small Business Association v. Yellen, the United States District Court Northern District of Alabama ruled that the CTA is in fact unconstitutional. In the opinion, Judge Liles C. Burke concluded the CTA “transcends the limits imposed by the Constitution on the legislative branch and lacks a strong connection to any enumerated power to serve as a necessary or appropriate means to achieve Congress’ policy objectives.”

The National Small Business Association v. Yellen ruling is narrow and only suspended enforcement of the CTA against the plaintiffs in the case. However, it did not relieve other entities of the obligation to comply with the CTA’s reporting requirements. Looking ahead, the U.S. Government will likely appeal this decision to the U.S. Court of Appeals for the Eleventh Circuit and seek an interim stay of the ruling.

While National Small Business Association v. Yellen and similar future cases work through the court system, entities and their beneficial owners should continue to comply with the CTA. Relying on this ruling or others like it to skirt CTA compliance could cause beneficial owners and reporting companies to miss reporting deadlines, putting them at risk of significant penalties under the CTA.

For more information on CTA applicability and reporting requirements please refer to the following article: Corporate Transparency Act: What is it and what should I know?

The information provided herein is not intended to provide legal advice to the reader.

If you have questions about whether or not the CTA applies to you or your business or how this or future court cases may impact these requirements, please email us here.

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