NEWS: The 2021 Corporate Transparency Act (CTA) required FinCEN to publish rules, obligating certain companies to report “beneficial ownership information” (BOI) directly to FinCEN. Those rules became effective on January 1, 2024. We explained the impact of FinCEN’s BOI rules on credit unions in this Feb 2024 Compliance Courier.
Just two months later, the CTA was declared unconstitutional by the United States District Court for the Northern District of Alabama in National Small Business United v. Yellen.
The plaintiffs were the National Small Business Association (NSBA) which represents U.S. small businesses and entrepreneurs, and one of its members. They sued the Treasury Department and FinCEN, alleging the CTA exceeded Congressional authority and violated the First, Fourth, Fifth, Ninth and Tenth Amendments. The court held, among other things, that the CTA “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.” FinCEN’s customer due diligence (CDD) rule from 2016 provides “nearly identical information,” the court stated, “but the CDD rule does so in a constitutionally accepted manner.” The court found that the CTA is unconstitutional on the grounds that Congress lacked authority to enact it. An official from the Treasury, which oversees FinCEN, said the agency would comply with the injunction and referred further questions to the Justice Department.
The jurisdiction of the deciding court is limited to its district in Alabama. FinCEN issued this press release, confirming that it takes the position that only the NSBA and its members are affected. Unlike some other cases, the court did not accompany its opinion with any sort of nationwide or extraterritorial injunction prohibiting enforcement elsewhere. The U.S. government is likely to appeal this decision. For now, other “reporting companies” are still bound by the rule and should continue to comply until further notice.
The League will continue to monitor subsequent developments and provide further updates.