US Appeals Court Temporarily Bars Anti-Money Laundering Law Enforcement

Anti-Money Laundering Law

A U.S. appeals court has temporarily halted the enforcement of an anti-money laundering law requiring corporate entities to disclose their real beneficial owners to the U.S. Treasury Department.

The decision comes ahead of a deadline for most companies to comply with the Corporate Transparency Act (CTA).

On Thursday, the 5th U.S. Circuit Court of Appeals, based in New Orleans, reinstated a nationwide injunction originally issued by a federal judge in Texas earlier this month. The judge had ruled that the CTA was unconstitutional. The injunction had been temporarily lifted by a three-judge panel of the 5th Circuit on Monday at the request of the U.S. Department of Justice, which sought to appeal the Texas decision.

The appeals court’s Thursday ruling marked a shift in direction, with the court stating it had decided to maintain the pause on the law’s enforcement “to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” This order delays the implementation of the CTA, which had required most companies to submit their initial reports to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by January 13, 2024.

The injunction was sought by the National Federation of Independent Business (NFIB), which, along with several small businesses, challenged the law. The lawsuit was supported by the conservative Center for Individual Rights. Todd Gaziano, the Center’s president, argued that the law is likely unconstitutional and that the government surveillance it entails should be halted until the case is fully resolved.

The CTA, enacted in 2021, mandates corporations and LLCs to report information about their beneficial owners to FinCEN. The goal of the law is to combat money laundering and other financial crimes by addressing the increasing use of anonymous companies to conceal illicit activities. Proponents argue that the law would help prevent criminals from using entities like limited liability companies (LLCs) to hide their involvement in illegal activities.

However, opponents, including Judge Amos Mazzant of Texas, argue that the law exceeds Congress’s authority under its constitutional powers to regulate commerce, taxes, and foreign affairs. Mazzant described the CTA as a “quasi-Orwellian statute” and ruled on December 3 that it likely violates states’ rights under the U.S. Constitution’s Tenth Amendment.

As the legal battle continues, the future of the CTA remains uncertain, with its enforcement now delayed until the appeals court addresses the constitutional issues raised in the case.