In an effort to stop financial crimes, money laundering, and other illegal activities, the Corporate Transparency Act (CTA) has been established to oversee commercial activities that can impact interstate commerce. These activities often take place under the cover of “shell companies” that are used by individuals that can help conceal their ownership of business activities.
On March 2024, in National Small Business United v. Yellen, the Federal District Court for the Northern District of Alabama held that the CTA was unconstitutional. The prevailing argument asserted that Congress exceeded its enumerated powers upon its approval of the CTA. The court held that in case of the litigants, the Commerce Clause does not also extend to the substantive regulation of business entities and their engagement in commerce. However, FinCEN will continue to implement the CTA those not involved in the lawsuit.
More recently, the Department of Justice appealed this ruling, and has filed a brief. The government asserts that the collection of ownership information is necessary to protect foreign and interstate commerce. Additionally, there are claims that the CTA will improve national security, intelligence, and law enforcement efforts to counter financial crimes, money laundering, and other illegal activities.
Ultimately, the courts will have to evaluate the validity of these arguments as they relate to the United States Constitution, relevant authority of Congress, and the balance between regulatory goals and the freedom of individuals in our country. In the meantime, businessowners must remain in compliance with the CTA in order to avoid fines and imprisonment.
For more information on CTA compliance, refer to the FinCEN website:
For assistance with your small business’s legal needs, contact the clinic at businessclinic@elon.edu.
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