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The enforcement of the anti-money laundering law in the United States has come to a halt following a decision by a U.S. appeals court. The law in question requires corporate entities to disclose the identities of their ultimate beneficial owners to the U.S. Treasury Department by a certain deadline. However, this enforcement has been temporarily suspended due to a ruling that deemed the law unconstitutional.
Late on Thursday, the 5th U.S. Circuit Court of Appeals, based in New Orleans, reinstated a nationwide injunction that had initially been issued by a federal judge in Texas. This judge had declared that the Corporate Transparency Act, which mandates the disclosure of beneficial ownership information, was unconstitutional. The decision by the appeals court has temporarily halted the enforcement of this law in order to maintain the constitutional status quo while considering the substantive arguments presented by both parties.
The order to suspend the enforcement of the law was made to allow for a full hearing by a separate panel that will ultimately determine whether to uphold the Texas judge’s ruling. The arguments are scheduled to be heard on March 25. In response to the appeals court’s decision, the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department announced that companies are not currently required to submit beneficial ownership information. However, voluntary submissions are still being accepted.
The legal battle surrounding the Corporate Transparency Act has been ongoing since its introduction in 2021. A group of small businesses, together with the National Federation of Independent Business, challenged the law with the help of attorneys from the Center for Individual Rights. The injunction was obtained based on the argument that the law was potentially unconstitutional and constituted an invasion of privacy by the government.
Todd Gaziano, president of the Center for Individual Rights, emphasized the need to suspend the law’s enforcement until its constitutionality is fully resolved. He stated that the government should not engage in intrusive surveillance measures until the legality of the law is settled. The law was intended to combat money laundering and other financial crimes by requiring corporations and limited liability companies to disclose information about their beneficial owners.
Critics of the law argue that it infringes on states’ rights and goes beyond Congress’s constitutional authority. U.S. District Judge Amos Mazzant in Sherman, Texas, ruled that the law was a “quasi-Orwellian statute” and likely violated the Tenth Amendment of the U.S. Constitution, which protects states’ powers from federal overreach. He maintained that the law exceeded Congress’s authority in regulating commerce, taxes, and foreign affairs.
The legal battle over the Corporate Transparency Act underscores the complexity of balancing the need for financial transparency with individual privacy and states’ rights. The outcome of the ongoing legal proceedings will likely have far-reaching implications for how the U.S. government regulates and monitors financial transactions to prevent money laundering and other illicit activities.
