A judge in Texas has issued a nationwide injunction blocking the Corporate Transparency Act.
The law pushed by the Biden Administration allegedly aimed at increasing corporate transparency and cracking down on financial crimes like money laundering.
The injunction, issued by Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas, stopped a key provision of the act that would have required millions of U.S. businesses to disclose a vast amount of ownership and stakeholder information to the Treasury Department’s Financial Crimes Enforcement Network.
The lawsuit against the Corporate Transparency Act (CTA), filed by a coalition of business owners, including a family-run firearms retailer, Texas Top Cop Shop Inc., and the Libertarian Party of Mississippi, argued that the CTA oversteps Congress’s constitutional authority under the Commerce Clause.
Judge Mazzant’s opinion affirmed that the CTA’s requirement that businesses report information about their owners, regardless of whether they engage in commercial activity, does not match Congress’s power.
The plaintiffs also argued that the law’s reach was excessively broad and unconstitutional, as it regulates businesses that do not even actively participate in “commercial endeavors,” thus falling outside the scope of federal commerce authority.
“For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Mazzant wrote in his ruling.
“The fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects—especially though the CTA, which does not facially regulate commerce,” he added.
The court further explained that although Congress does have the power to regulate interstate commerce, the CTA’s requirement that business entities disclose private ownership information did not qualify as a legitimate use of that power.
ATheCTA was designed to increase transparency by requiring an estimated 32.6 million existing business entities to disclose the names of their owners or stakeholders.
The Biden administration argued that Congress does have the authority to regulate these practices under its power to regulate commerce. However, the court’s decision could cast doubt on the federal government’s ability to use these disclosures under the Constitution’s Commerce Clause.
The nationwide injunction is a big blow to the Biden administration’s push for “corporate transparency.” However, with the reporting deadline looming, it remains unclear how the Treasury Department will respond.
According to a report from Bloomberg Law, the Biden administration will likely appeal the judge’s decision, setting the stage for a prolonged legal battle over the scope of federal powers and the balance between privacy and transparency in corporate America.
The Justice Department has yet to comment publicly on the ruling at the time of publication.
If the injunction stands, the Corporate Transparency Act could be permanently blocked or at least delayed indefinitely.