A federal judge in Texas has issued a nationwide injunction blocking the enforcement of the Corporate Transparency Act (CTA), a 2021 law requiring businesses to disclose the identities of their beneficial owners to the U.S. Treasury Department. The ruling, delivered by U.S. District Judge Amos Mazzant of the Eastern District of Texas, halts the implementation of the law ahead of its January 1, 2025, compliance deadline.

The CTA, enacted as part of an annual defense spending bill in early 2021, aimed to combat money laundering by requiring corporations, limited liability companies (LLCs), and other entities to report detailed ownership information. The Treasury’s Financial Crimes Enforcement Network (FinCEN) expected over 32 million reports in its first year of implementation. Noncompliance with the law carried significant penalties, including fines of up to $10,000 and potential imprisonment for up to two years.

Judge Mazzant’s ruling aligns with a previous decision from an Alabama federal judge earlier this year, which also deemed the law unconstitutional but applied the injunction only to the parties involved in that case. In his 74-page opinion, Mazzant described the CTA as an "unprecedented" federal overreach into areas traditionally governed by state law. He argued that Congress lacked the authority under the U.S. Constitution to regulate in this manner, citing states' rights under the Tenth Amendment.

“For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote. He further criticized the law as likely violating the constitutional principles of commerce regulation and state sovereignty.

The plaintiffs, which included the National Federation of Independent Business (NFIB), several small businesses, and non-profits, contended that the law infringed on privacy rights and imposed unnecessary burdens on small businesses. Beth Milito, Executive Director of NFIB’s Small Business Legal Center, hailed the decision as “a huge victory for small businesses nationwide.”

The CTA has faced criticism since its introduction in 2019, with opponents arguing that it imposes excessive compliance costs and violates privacy. The law required businesses to report identifying information, including names, birthdates, and addresses, for each beneficial owner and company applicant.

Supporters of the CTA, including law enforcement agencies, argued that it was necessary to prevent the use of anonymous shell companies for laundering illicit funds. However, compliance has been sluggish, with only about 20% of eligible entities submitting reports by the end of 2024.

The ruling creates significant uncertainty for businesses as the January 2025 compliance deadline approaches. FinCEN, which has maintained the constitutionality of the CTA, is reviewing the decision and has not yet announced its next steps. Legal experts anticipate an appeal by the Department of Justice, potentially escalating the case to the Supreme Court.

Caleb Kruckenberg, litigation director at the Center for Individual Rights, stated that the injunction offers small businesses “a reprieve while the courts, and likely the Supreme Court, can consider the constitutional issues further.”

The nationwide injunction underscores the ongoing legal and political debate surrounding federal regulatory overreach and states' rights. If the ruling is upheld, it could reshape the scope of anti-money laundering regulations and their enforcement across the U.S.

The case, Texas Top Cop Shop v. Garland, represents a significant challenge to Congress’s ability to mandate disclosure requirements for corporate entities, with potentially far-reaching implications for financial regulation and privacy protections nationwide.

Forbes Article