Federal Government Expected to Appeal Decision and Seek a Stay in the Interim On March 1, 2024, the U.S. District Court for the Northern District of Alabama held that the Corporate Transparency Act (“CTA”)—which requires most reporting companies to file a beneficial ownership information report (“BOIR”) with the Financial Crimes Enforcement Network (“FinCEN”)—is unconstitutional as beyond Congress’s authority. Our prior memorandum (which can be found here) gives further detail about the CTA’s requirements.
Specifically, the District Court rejected the government’s argument that Congress had the authority to enact the CTA under its Constitutional powers to regulate foreign affairs and interstate commerce and to impose taxes. Although the Court acknowledged Congress’s representation that the CTA was designed to stop U.S. and non-U.S. entities from engaging in money laundering, tax avoidance, and other criminal activities, the Court found that the reporting requirements were not sufficiently tailored to be within Congress’s powers and also impinged on the powers traditionally held by state governments over the terms of the formation of new companies. Additionally, the Court suggested in its decision how Congress might amend the CTA to fit within the Constitution’s Commerce Clause.
