Citing constitutional concerns, U.S. District Judge Amos Mazant of the Eastern District of Texas in Sherman ordered a stay of certain financial reporting requirements of the Corporate Transparency Act.
He granted a motion for a preliminary injunction sought by the National Federation of Independent Business and numerous other small business plaintiffs.
Mazant concluded that the CTA and the U.S. Treasury regulations implementing it are “likely to violate the Constitution because they are outside the authority of Congress.”
“We’re excited to see this move,” said Matt Bisanz, a Mayer Brown partner in the firm’s financial services practice who previously worked at the U.S. Securities and Exchange Commission. Personal information to the government. ”
Bizanz said the Financial Crimes Enforcement Network would likely consider an emergency appeal. “I hope FinCEN takes the message from the court’s decision and does not try to impose an unfair burden on new companies,” he said.
Ian Gailey, executive director of The FACT Coalition, a bipartisan coalition of more than 100 state, national and international organizations that promotes policies to combat the negative effects of illicit finance on communities, said: “This misguided injunction is It’s a Christmas present for criminals.” They use anonymous shell companies to traffic fentanyl, exploit people, and hide dirty money. ”
“This law is clearly constitutional, and Congress had full power to pass legislation to protect America and secure our financial borders. Two other federal courts have reached the opposite conclusion, and similar lawsuits Having denied the injunction, we expect the government to move immediately to end this extraordinary order,” Gary said.
In his 79-page opinion and order, Mazzant wrote that the CTA regulates businesses that are registered to do business under state law, and requires those businesses to provide detailed personal information about their owners. It requires them to report their ownership to the federal government or face severe penalties. Penalties.
“Although seemingly benign, this federal mandate represents a twofold dramatic departure from history. First, it requires the federal government to monitor corporations established under state law. “It represents an experiment. This is an issue that our federalist system has left almost exclusively to a few states,” Mazzant said. . “Second, the CTA abolishes a feature of company formation designed by various states: anonymity. Plaintiffs, with good reason, argue that this neighboring Orwellian law and its We are concerned about the impact this will have on the dual governance system.
Mazzant added: “Despite attempts at every turn to harmonize the CTA with the Constitution, the government is unable to provide the court with a convincing theory that the CTA is within Parliament’s authority.” .
Erin Bryan, Partner and Co-Chairman of Dorsey & Whitney’s Consumer Financial Services Group, said, “While this ruling is understandably welcomed by many with enthusiasm, it is is not the end of the CTA, nor is it the end of beneficial ownership reporting requirements.” . ”
Other federal courts have considered the constitutionality of beneficial ownership reporting requirements and have reached mixed results, so the case could head to a showdown at the U.S. Supreme Court, Bryan said.
“While the Texas decision is a clear victory for the industry, in some ways the court’s decision also adds further confusion to the already murky CTA landscape. One aspect this decision does not address is the Whether a newly formed entity is subject to an injunction or January 2024 1 This may have been a deliberate restriction by the court, but it does leave some uncertainty in the industry.” said Brian.
The plaintiffs’ challenge to the law was prepared by Caleb Kruckenberg and Christian Clase of the Center for Individual Rights in Washington, DC. The local attorney is John Clay Sullivan of the SL Law Firm in Cedar Hill.