In a blow to government efforts to combat money laundering, a federal court has ruled that the Treasury Department cannot require some small businesses to report personal details about their owners.
The ruling, issued by Judge Liles C. Burke of the U.S. District Court in Huntsville, Ala., comes as a setback to the implementation of the Corporate Transparency Act, a law passed in 2020 with bipartisan support. The law aimed to help the Treasury Department identify money launderers who use shell corporations to hide their illicit activities.
Under the law, small businesses were required to share information about their beneficial owners, individuals who hold financial stakes in a company or have significant power over business decisions. However, critics of the law argued that it was a case of congressional overreach to ask for personal data such as names, addresses, and identification documents.
The ruling, which prevented the enforcement of the ownership reporting requirements on the plaintiff in the Alabama case, the National Small Business Association, has raised questions about the future of the law’s implementation. The Justice Department is expected to appeal the decision to the 11th Circuit Court of Appeals in Atlanta.
While the immediate impact of the ruling on the 33 million small businesses in the United States is not entirely clear, some companies are already feeling the effects of the uncertainty. Compliance and regulatory matters advisor Angela I. Gamalski noted that the ruling has made things more complicated for her clients, who are now unsure about how to proceed with the reporting requirements.
Proponents of greater transparency have decried the ruling, with Senator Sheldon Whitehouse urging the government to appeal quickly to ensure that the law’s transparency requirements can be fully implemented. The future of the Corporate Transparency Act remains uncertain as the legal battle continues.
