Sherman, Texas — A federal judge in Texas has issued a nationwide injunction blocking the enforcement of the Corporate Transparency Act (CTA), an anti-money laundering law requiring corporate entities to disclose their real beneficial owners to the U.S. Treasury Department. U.S. District Judge Amos Mazzant sided with small business advocates and nonprofits, concluding that the 2021 law was likely unconstitutional and violated states’ rights under the Tenth Amendment.
The ruling, issued on Tuesday, grants a temporary reprieve to small business owners and nonprofit organizations that have voiced concerns about the burdensome compliance requirements of the law. It is the second time this year that a judge has deemed the CTA unconstitutional, following a similar decision by an Alabama federal judge in March. However, that earlier ruling was narrower, only blocking the law as it applied to the plaintiffs in that case.
Judge Mazzant, in his ruling, described the CTA as an “unprecedented” attempt by the federal government to legislate in an area traditionally left to the states, specifically the regulation of companies formed under state law. He argued that the law was an overreach by Congress, intruding on the states’ rights to govern corporate formation and maintain business privacy.
“For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote, emphasizing that Congress lacked authority under its constitutional powers to regulate commerce, taxes, and foreign affairs to adopt such sweeping requirements.
The Corporate Transparency Act and Its Impact
The Corporate Transparency Act, passed in 2021, was aimed at curbing money laundering and other illicit financial activities by requiring corporations and limited liability companies (LLCs) to disclose the identities of their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The law was part of a broader bipartisan package enacted at the end of President Donald Trump’s first term, included in the annual defense spending bill despite Trump’s veto, which was overridden by Congress.
Supporters of the CTA argued that the law was necessary to address the growing use of the United States as a venue for financial crimes, with criminals exploiting state laws that allowed the formation of anonymous shell companies. By requiring disclosure of beneficial owners, they hoped to create greater transparency and prevent bad actors from hiding behind corporate anonymity.
However, small businesses and privacy advocates raised concerns about the scope of the law and the potential implications for privacy and individual rights. They argued that the CTA placed an undue burden on millions of legitimate small businesses, forcing them to report sensitive personal information to a centralized government database. Opponents also questioned whether such broad requirements were truly effective in combatting financial crime, noting that the law targeted even the smallest companies with no history of illegal activities.
Legal Battle Over Privacy and States’ Rights
The lawsuit challenging the CTA was filed in May by the Center for Individual Rights on behalf of five small entities and the National Federation of Independent Business (NFIB), a 300,000-member trade group representing small businesses across the United States. The plaintiffs argued that the CTA violated states’ rights by attempting to regulate entities formed under state laws, infringing on an area of governance historically managed by the states.
Judge Mazzant’s ruling grants a nationwide preliminary injunction, blocking the enforcement of the CTA ahead of the January 1 deadline when companies were expected to comply with its requirements. The injunction provides immediate relief for millions of businesses that faced the looming threat of fines and penalties for non-compliance.
Caleb Kruckenberg, the litigation director at the Center for Individual Rights, praised the ruling, calling it “a reprieve while the courts, and likely the Supreme Court, can consider the constitutional issues further.” Kruckenberg emphasized that the CTA’s blanket requirements were not only burdensome but also represented an unconstitutional expansion of federal authority into areas better regulated at the state level.
The Justice Department declined to comment on the ruling, but the case is widely expected to be appealed, potentially setting up a showdown in the Supreme Court. The case, titled Texas Top Cop Shop v. Garland, underscores the ongoing debate over the balance of power between federal and state governments and the proper scope of federal authority in regulating business activities.
An Uncertain Future for Corporate Transparency Requirements
The Corporate Transparency Act has been a contentious issue since its inception, highlighting the challenges of striking a balance between effective regulation to combat financial crimes and the protection of individual privacy rights. While supporters of the law insist that greater transparency is needed to tackle the problem of anonymous shell companies being used for money laundering, critics argue that the CTA casts too wide a net, subjecting millions of innocent small business owners to invasive and burdensome reporting requirements.
Judge Mazzant’s ruling is significant not only for its immediate impact on the enforcement of the law but also for its broader implications for federalism and the limits of federal power. By blocking the CTA, Mazzant reinforced the argument that states should have primary authority over corporate regulation, and that Congress overstepped its constitutional bounds in attempting to centralize control over company ownership disclosures.
The ruling provides a temporary victory for privacy advocates and small business owners, but the future of the CTA remains uncertain. As the case continues to wind its way through the courts, the legal battle over the Corporate Transparency Act will likely become a defining issue in the debate over federal power, privacy, and the rights of small businesses to operate free from excessive government intrusion.
For now, the injunction halts the enforcement of the CTA, sparing millions of businesses from the January compliance deadline, but leaving open questions about how the government will address concerns over money laundering and financial transparency moving forward.
Sources:
- Reuters. “Texas Judge Blocks Anti-Money Laundering Law’s Enforcement Nationwide.” Link
- Statements from U.S. District Judge Amos Mazzant on the Corporate Transparency Act ruling, December 2024.
- Comments from Caleb Kruckenberg, litigation director at the Center for Individual Rights.
