A U.S. District Court judge in Alabama has ruled the Corporate Transparency Act (CTA) unconstitutional. The CTA was enacted as part of the Anti-Money Laundering Act of 2020 and underpins the nascent beneficial ownership reporting regime.
What You Need to Know
Key takeaway #1: The government has appealed the decision, and FinCEN has stated that it will comply with the Court's ruling regarding the named plaintiffs and members of the National Small Business Association (as of March 1, 2024); those entities are not currently required to report BOI to FinCEN.
Key takeaway #2: The Court did not issue a nationwide injunction halting the CTA's enforcement against all Reporting Companies, meaning the CTA remains in effect (for now) as to entities other than the named plaintiffs and NSBA members as of March 1, 2024.
Key takeaway #3: Other businesses and plaintiffs may use this ruling to file similar challenges seeking a nationwide injunction of FinCEN's enforcement of the BOI requirements under the CTA.
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On March 1, 2024, a pivotal ruling by a federal judge in Alabama declared the Corporate Transparency Act (CTA) unconstitutional. This ruling marks a significant phase in the legal challenge led by the National Small Business Association (NSBA), with backing from the S-Corporation Associates of America and the Main Street Employers Coalition. This judgment emerges from a 16-month legal battle against the CTA's intent to create a beneficial ownership reporting framework as part of the Anti-Money Laundering Act of 2020.
This decision, for now, benefits only the plaintiffs, especially the NSBA and its 65,000 members, providing them a temporary exemption from the CTA's reporting requirements. However, FinCEN has indicated that, without a broader suspension from the Treasury Department, the obligation to submit beneficial ownership information remains for other U.S. entities not covered by the ruling.
Following the Court's decision, the Department of Justice swiftly filed an appeal on March 11, escalating the judicial conflict over the CTA and ushering in a period of substantial legal uncertainty. This situation may lead to a temporary halt in the CTA's enforcement, depending on the forthcoming decisions from the 11th Circuit Court or the outcome of the appeal process.
Given these developments, entities affiliated with the involved associations and small business owners are encouraged to seek legal advice to understand the potential impacts of this ruling. It's crucial to stay updated on the legal proceedings and possible legislative adjustments that may affect compliance requirements and the broader regulatory framework for combating money laundering in the U.S.