The federal Corporate Transparency Act, intended to combat money laundering through shell companies, has been the subject of court rulings that pushed back the filing of required beneficial ownership reports.
Millions of legal entities will not have to do this share information about their owners with the Treasury Department after an appeals court overturned a ruling that would have required them to do so from January 1.
Under the Corporate Transparency Act, an anti-money laundering law passed in 2020, companies would have had to disclose the identity of their “beneficial owners”, people who own 25% or more of the company, or who exercise significant control . about this, by next year. But the law was challenged in court.
This week, a three-judge panel of the 5th U.S. Circuit Court of Appeals stayed a lower court injunction that allowed the law to take effect.
But on Thursday, the court reversed course, overturning its earlier decision “in order to preserve the constitutional status quo,” he said.
The new order signifies a nationwide injunction, issued by Judge Amos L. Mazzant III of the Eastern District of Texas, that bars enforcement of the Corporate Transparency Act while the constitutionality of the law is reviewed by the courts , will remain in force.
In a court filing Tuesday asking the 5th Circuit to reconsider its suspension, opponents of the Corporate Transparency Act called it a “scandalously unconstitutional law.” They said that by requiring companies to disclose information about their ultimate owners to the Financial Crimes Enforcement Network, or FinCEN, a bureau of the Treasury Department, the law had the potential to “harm tens of millions of Americans by forcing them to bear sunk costs.” » for paperwork and compliance.
Opponents say the law infringes on anonymous owners’ rights to free association and the Fourth Amendment right to keep their information private. They also argue that it infringes on the rights of states where the companies are registered.
But supporters of the law said it was a necessary step given the ease with which it is possible to form companies in the United States without disclosing the identity of who owns or controls the new business. . Criminals and terrorists are taking advantage of current U.S. practices, they say, to store assets in the country beyond the reach of law enforcement.
After the 5th Circuit panel stayed the injunction, FinCEN granted the companies a 12-day extension to file their cases. A second update said businesses were now no longer required to file “so long as the applicable order remains in effect.”
Litigation over the Corporate Transparency Act is currently pending before four federal appeals courts. Mazzant’s injunction was the first to suspend enforcement of the law nationwide.
“I think this case will almost certainly go to the Supreme Court, now or in the future,” said Caleb Kruckenberg of the Center for Individual Rights, one of the attorneys representing the plaintiffs.
FinCEN estimated that 32.6 million businesses would need to register under the law; Kruckenberg said the number of people affected would be at least three times higher.