U.S. Supreme Court Removes Hurdle to Anti-Money Laundering Law, but
Enforcement Remains on Hold
The U.S. Supreme Court recently declined to block enforcement of the Corporate Transparency Act (CTA), a key anti-money laundering law requiring businesses to disclose their beneficial owners. However, the law remains temporarily suspended due to conflicting lower court rulings, leaving its ultimate fate in the hands of the Trump administration.
Key Developments
- Supreme Court Action: On January 23, the Supreme Court declined to lift a nationwide injunction blocking the CTA, which was issued by U.S. District Judge Amos Mazzant on December 3, 2023. The injunction was challenged by the Biden administration, which argued that millions of businesses had already complied with the law’s reporting requirements.
- Legal Challenges: The CTA, enacted in 2021, mandates that corporations and limited liability companies (LLCs) report their beneficial owners—individuals who directly or indirectly own or control a company—to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Small businesses, represented by the conservative Center for Individual Rights, argue that the law oversteps congressional authority and imposes invasive reporting requirements.
Background and Legal Battles
The CTA was designed to combat money laundering, tax fraud, and terrorism financing by increasing transparency in corporate ownership. Supporters argue that the U.S. has become a haven for criminals to launder illicit funds through anonymously owned entities like LLCs. However, small businesses and their advocates claim the law imposes undue burdens and violates constitutional rights.
In December 2023, Judge Mazzant ruled that Congress overstepped its constitutional authority under the Commerce Clause and the 10th Amendment, which reserves certain powers to the states. He described the CTA as a “quasi-Orwellian statute” and issued a nationwide injunction halting its enforcement. This decision was upheld by the 5th U.S. Circuit Court of Appeals, prompting the Biden administration to appeal to the Supreme Court.
Supreme Court’s Decision and Implications
The Supreme Court’s refusal to lift the injunction means the CTA remains on hold, at least temporarily. Conservative Justice Neil Gorsuch supported the decision but suggested the Court should address whether a single judge can issue nationwide injunctions. Liberal Justice Ketanji Brown Jackson dissented, noting that further delays in implementing the law would not harm the government, which had already delayed enforcement for nearly four years.
The Biden administration, represented by Solicitor General Elizabeth Prelogar, argued that the CTA is crucial for preventing financial crimes and that Mazzant’s ruling was overly broad. Prelogar emphasized Congress’s authority under the Commerce Clause to regulate economic activities affecting interstate commerce.
What’s Next?
With the injunction still in place, businesses are not currently required to report beneficial ownership information. The Trump administration, which returned to power on January 20, 2024, will now decide whether to defend the law or let it lapse. Todd Gaziano of the Center for Individual Rights expressed confidence that the CTA’s “invasive reporting requirements and draconian penalties” will ultimately be ruled unconstitutional.
The National Federation of Independent Business, which led the legal challenge, argues that the CTA places an unfair burden on small businesses while failing to effectively target criminal activity. Supporters of the law, however, contend that it is a necessary tool for combating financial crimes and ensuring corporate accountability.
Conclusion
The fate of the Corporate Transparency Act remains uncertain as legal and political battles continue. While the Supreme Court’s decision removes one hurdle, the law’s enforcement is still blocked, leaving its future in the hands of the Trump administration. The outcome will have significant implications for businesses, law enforcement, and efforts to combat money laundering and other financial crimes.
- Timeline:
- 2021: Congress enacts the Corporate Transparency Act.
- December 3, 2023: Judge Amos Mazzant issues a nationwide injunction blocking the CTA.
- January 7, 2024: Judge Jeremy Kernodle issues a separate order maintaining the injunction.
- January 23, 2024: Supreme Court declines to lift the injunction.
- Key Players:
- Judge Amos Mazzant: Issued the initial injunction against the CTA.
- Solicitor General Elizabeth Prelogar: Represented the Biden administration in defending the law.
- Todd Gaziano: President of the Center for Individual Rights, representing small businesses challenging the law.
- National Federation of Independent Business: Led the legal challenge against the CTA.
This ongoing legal saga highlights the tension between national security interests and concerns over government overreach, with significant implications for corporate transparency and the fight against financial crime.
