An Alabama federal district judge has dealt a setback to the Biden administration's efforts to enhance corporate transparency. The judge ruled that the Treasury Department cannot mandate small business owners to disclose information about their owners and beneficiaries.
The ruling, issued by U.S. District Judge Liles C. Burke, declared the Corporate Transparency Act, a key U.S. anti-money laundering law passed as part of the National Defense Authorization Act for fiscal year 2021, as unconstitutional. The judge argued that Congress had overstepped its authority in enacting the law, rendering the subsequent rulemaking invalid.
The National Small Business Association initiated legal action in November 2022 to challenge the requirement for millions of small businesses to register with the government. This registration was intended to prevent the illicit use of anonymous shell companies for criminal activities.
The small business advocacy group contended that the reporting mandate violated the Constitution by imposing undue burdens on small enterprises, infringing on privacy and free-speech rights, and encroaching on states' regulatory powers over businesses.
This legal dispute underscores the tension between safeguarding privacy rights and the government's imperative to uncover illicit financial activities. The context of the U.S.'s efforts to sanction Russian oligarchs and associates of President Vladimir Putin amid the Ukraine conflict adds complexity to the debate.
Judge Burke, appointed by former President Donald Trump, criticized the Corporate Transparency Act as an instance of 'congressional overreach,' asserting that it lacked justification within Congress' enumerated powers.
A Treasury Department spokesperson acknowledged the court's ruling and highlighted Congress's bipartisan support for the Corporate Transparency Act as a tool to combat financial crimes and illicit shell companies.
Commenting on the ruling, Ian Gary, executive director of the FACT Coalition, condemned the decision as favoring criminal elements by enabling the use of anonymous shell companies to conceal illicit funds from law enforcement.
