Since January 1, 2024, entities and lawyers across the Unites States have been working on complying with the Corporate Transparency Act (the “CTA”). The CTA requires entities to file information on their “beneficial owners” with the Financial Crimes Enforcement Network. The main goal of the CTA is to prevent money laundering.

Last week, the Federal District Court for the Northern District of Alabama held that the CTA is unconstitutional when deciding the case National Small Business United v. Yellen (Case No. 5:22-cv-1448-LCB, ND-AL).

The winning argument was that Congress exceeded its enumerated powers when it approved the CTA. The Commerce Clause of the Constitution grants Congress the power to regulate commerce among the states. The court found that this power does not extend to the substantive regulation of the business entities utilized to engage in commerce. It is likely the Department of Justice will appeal the decision.

Though the plaintiffs of the case, National Small Business Association and Isaac Winkles will not be required to comply with the CTA as the litigation continues, other entities who must comply with the CTA are still required to do so.

As the litigation continues, lawyers and entities working on complying with the CTA should watch closely. If the litigation works its way all the way to the Supreme Court, the CTA might just find itself overturned.

For help with your small business’s legal needs, contact the clinic at businessclinic@elon.edu.

 

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