An appeals court in the United States has temporarily halted the enforcement of an anti-money laundering law that requires most American companies to disclose the identities of their actual beneficial owners to the Treasury Department before the deadline.
On Thursday, the U.S. Fifth Circuit Court of Appeals in New Orleans overturned a nationwide injunction issued by a federal judge in Texas earlier this month. The judge ruled that the Corporate Transparency Act (CTA) was unconstitutional.
This injunction signifies a shift in the court’s stance. On Monday, during the government’s appeal of the Texas judge’s ruling, three judges from the Fifth Circuit Court had temporarily stayed the injunction at the urging of the Department of Justice. However, the decision on whether to uphold the Texas judge’s ruling was ultimately left to another panel of judges.
In its order on Thursday, the appeals court stated that it was suspending the enforcement of the law (referring to the Corporate Transparency Act) to “maintain the constitutional status quo while the merits of the substantive arguments are considered by the panel.”
The appeals court stated on Friday that these arguments will be heard on March 25 next year.
Previously, most companies were required to submit preliminary reports to the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department by the deadline of January 13. However, following the appeals court’s order on Thursday, FinCEN stated on Friday that companies are not required to submit beneficial ownership information to the agency, but “reporting companies can continue to voluntarily submit beneficial ownership information reports.”
The Texas judge’s injunction was issued at the behest of the National Federation of Independent Business, which, along with several small businesses, raised concerns about the Corporate Transparency Act through attorneys from the Center for Individual Rights, which is supported by conservatives.
Todd Gaziano, the chairman of the Center for Individual Rights, stated in a release, “Given that we have determined that the Corporate Transparency Act may be unconstitutional, this intrusive form of government surveillance should be halted until the fate of the law is ultimately resolved.”
According to the law enacted in 2021, companies and limited liability companies are required to report information about their beneficial owners to FinCEN, which is responsible for collecting and analyzing information on financial transactions to combat money laundering and other crimes.
Supporters of the law argue that it aims to address the issue of the United States becoming an increasingly attractive destination for money launderers, where criminals establish entities such as limited liability companies under state law without disclosing their participants.
Judge Amos Mazzant in Sherman, Texas, ruled on December 3 that Congress does not have the authority to enact “quasi-Orwellian statutes” that regulate commercial, tax, and diplomatic affairs, and that such statutes may infringe on the rights reserved to states by the Tenth Amendment of the U.S. Constitution.