In a recent decision, the 5th U.S. Circuit Court of Appeals has halted the enforcement of an anti-money laundering law that requires corporate entities to disclose the identities of their real beneficial owners to the U.S. Treasury Department. This decision comes ahead of a deadline for most companies to comply with the law, known as the Corporate Transparency Act.
The court’s ruling, which was issued late Thursday, reinstated a nationwide injunction that had been previously issued by a federal judge in Texas. The judge had deemed the law unconstitutional, and the 5th Circuit Court of Appeals has now decided to uphold this decision.
This marks a significant change of course for the court, as just a few days prior, a three-judge panel had put the injunction on hold while the U.S. Department of Justice appealed the Texas judge’s ruling. However, the court has now decided to keep the enforcement of the law paused in order to “preserve the constitutional status quo” while the merits panel considers the arguments presented by both sides.
The court is set to hear these arguments on March 25, and until then, the law will not be enforced. This means that companies who were facing a January 13 deadline to submit their initial reports to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) will now have more time to comply.
The injunction was obtained by the National Federation of Independent Business, along with several small businesses, who challenged the law through lawyers at the conservative Center for Individual Rights. The president of the Center for Individual Rights, Todd Gaziano, stated that “given that we have established that the CTA is likely unconstitutional, this intrusive form of government surveillance should be halted until the law’s fate is finally resolved.”
The Corporate Transparency Act, which was enacted in 2021, requires corporations and LLCs to report information about their beneficial owners to FinCEN. This information is used to combat money laundering and other financial crimes. The supporters of the law argue that it is necessary to address the growing trend of criminals using the U.S. as a venue to launder illicit funds by setting up entities such as limited liability companies without disclosing their involvement.
However, U.S. District Judge Amos Mazzant in Sherman, Texas, ruled on December 3 that Congress did not have the authority to adopt this “quasi-Orwellian statute.” He also stated that the law likely violated states’ rights under the 10th Amendment of the U.S. Constitution.
The decision of the 5th Circuit Court of Appeals to uphold the injunction is a significant development in this ongoing legal battle. It shows that the court is taking the constitutional concerns raised by the plaintiffs seriously and is willing to pause the enforcement of the law until a final decision is reached.
This decision also provides relief to businesses who were facing the daunting task of complying with the law by the January 13 deadline. It gives them more time to understand the requirements and implications of the law and to prepare their reports accordingly.
In conclusion, the 5th Circuit Court of Appeals’ decision to halt the enforcement of the Corporate Transparency Act is a positive development for businesses and individuals concerned about the potential overreach of government surveillance. It shows that the court is committed to upholding the constitutional rights of individuals and businesses and will carefully consider the arguments presented before making a final decision.
