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The enforcement of the anti-money laundering law has been suspended by the United States appeals court, causing a significant legal upheaval that has far-reaching implications for corporate entities across the country. The law in question mandates that companies disclose the identities of their true beneficial owners to the U.S. Treasury Department, a requirement that had a looming deadline for compliance until the court stepped in.
Late Thursday, the 5th U.S. Circuit Court of Appeals, based in New Orleans, decided to reinstate a nationwide injunction that had been previously issued by a federal judge in Texas. This decision was prompted by the judge’s ruling that the Corporate Transparency Act, which required the disclosure of beneficial ownership information, was unconstitutional.
The legal maneuvering took a new turn when a three-judge panel of the Fifth Circuit temporarily suspended the injunction on Monday at the request of the U.S. Department of Justice. The government is currently in the process of appealing the original decision of the Texas judge.
In the latest order issued on Thursday, the court stated that it had chosen to pause the enforcement of the law in order to maintain the “constitutional status quo” while the merits panel reviews the substantive arguments presented by both parties. The decision regarding whether to uphold the judge’s ruling will ultimately rest with a separate panel.
It was announced on Friday that the arguments in the case will be heard on March 25, indicating a prolonged legal battle ahead to determine the fate of the anti-money laundering law.
Prior to the court’s intervention, companies were required to submit their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) of the Treasury Department by January 13. However, following the recent order, FinCEN clarified on Friday that companies are not obligated to provide this information at this time. Despite the suspension of the requirement, companies still have the option to voluntarily submit beneficial ownership reports to the agency.
The legal challenges to the Corporate Transparency Act have been brought forth by a coalition of small businesses and the National Federation of Independent Business, represented by attorneys from the Center for Individual Rights. The center successfully obtained the injunction, with President Todd Gaziano arguing that the law’s intrusive surveillance measures should be halted until the constitutionality of the law is definitively resolved.
FinCEN, the agency tasked with combatting money laundering and other financial crimes, had implemented the requirement for corporations and LLCs to disclose their beneficial owners under the law passed in 2021. Proponents of the measure argued that it was necessary to combat illicit funds being laundered in the U.S. through entities formed under state laws without revealing their true owners.
However, U.S. District Judge Amos Mazzant in Sherman, Texas, raised concerns about the law’s constitutionality in a ruling on December 3. Judge Mazzant concluded that Congress had overstepped its authority in enacting the law, referring to it as a “quasi-Orwellian statute” that may violate states’ rights under the Tenth Amendment of the U.S. Constitution.
The legal battle surrounding the anti-money laundering law is far from over, and the upcoming hearings on March 25 will be critical in determining the future of this controversial legislation. For now, companies are not required to disclose their beneficial ownership information, but the implications of this legal decision will be closely watched by businesses and regulators alike.
