Lawsuit finds success in challenge against CTA

In a decision by the United States District Court for the Northern District of Alabama (National Small Business United d/b/a the National Small Business Association et al. v. Janet Yellen, et al., Case No. 5:22-cv-1448-LCB), the Corporate Transparency Act has been declared unconstitutional.  

The ruling, issued on March 1, 2024, grants the plaintiffs’ motion for summary judgment while denying the government’s motion to dismiss and cross-motion for summary judgment. 

“The CTA has from the very beginning been poor policy that unfairly targets America’s small businesses,” says Todd McCracken, president and CEO of NSBA. “This ruling justifies the concerns of millions of American businesses about how the CTA is not only a bureaucratic overreach, but a constitutional infringement.”  

The CTA is a part of recent effort aimed at enhancing financial transparency and combating illicit activities such as money laundering and tax evasion. It is a key component of the 2021 National Defense Authorization Act, H.R. 6395, that mandated most entities incorporated under state law to disclose personal stakeholder information to the Treasury Department’s criminal enforcement arm. 

The court’s decision underscores tension between policy goals and constitutional boundaries, echoing sentiments expressed by Supreme Court Justice Antonin Scalia that the wisdom of a policy does not guarantee its constitutionality, according to the memorandum opinion written by Judge Liles Burke of the Northern District of Alabama.  

“As the court noted, the ultimate goals of the CTA, countering money laundering and terrorism financing are laudable,” says John Neiman, counsel for the NSBA and Winkles. “But as the court also noted, the Constitution sets limits on what Congress can do to achieve even the most laudable of goals, and Congress violated those limits here. Congress can find a way to achieve these goals without exceeding the limits on its powers under the Constitution.”  

The plaintiffs, including the NSBA and small business owner Isaac Winkles, argued that the CTA’s mandatory disclosure requirements exceeded Congress’s authority under Article I of the Constitution and infringed upon the First, Fourth, Fifth, Ninth, and Tenth Amendments. The court concurred, finding that the CTA lacked a sufficient nexus to any enumerated power to justify its provisions as a necessary or proper means of achieving Congress’s policy objectives. 

“The judge’s decision is an opportunity for Congress to go back to the drawing board and find a solution that will truly protect Americans from bad actors,” says McCracken. “The CTA simply will not accomplish the goal of stemming money-laundering – what it does is overstep the bounds of privacy, the law and common sense at the expense of America’s small businesses.”