US Appeals Court Halts Anti-Money Laundering Law Enforcement

U.S. Treasury Department

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

The decision by the 5th U.S. Circuit Court of Appeals in New Orleans reinstates a nationwide injunction issued earlier this month by a federal judge in Texas, who deemed the Corporate Transparency Act (CTA) unconstitutional.

The order represents a shift from the court’s earlier stance. On Monday, a three-judge panel of the 5th Circuit, following a request by the U.S. Department of Justice, had temporarily lifted the injunction to allow the government to appeal the Texas court’s ruling.

However, in Thursday’s order, the court stated it would keep the law’s enforcement on hold to maintain the “constitutional status quo” while a different panel considers the substantive arguments from both sides.

The injunction had been sought by the National Federation of Independent Business (NFIB), which, alongside several small businesses, challenged the CTA. The law required most companies to file reports on their beneficial owners with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by January 13.

Todd Gaziano, president of the conservative Center for Individual Rights, which represented the plaintiffs, argued that the law likely violates constitutional rights, calling it an “intrusive form of government surveillance” that should be halted until its constitutionality is resolved.

The CTA, enacted in 2021, mandates corporations and limited liability companies (LLCs) to report the identities of their beneficial owners to FinCEN, an agency responsible for combating financial crimes, including money laundering. Supporters of the law argue that it is crucial for addressing the growing use of anonymous shell companies in the U.S. to launder illicit funds.

In contrast, U.S. District Judge Amos Mazzant, in his December 3 ruling, found the CTA likely unconstitutional, claiming that Congress lacked the authority to impose such a statute under its powers to regulate commerce, taxes, and foreign affairs. He also argued that the law could violate states’ rights under the Tenth Amendment of the U.S. Constitution.

The appeals court’s decision to pause the law’s enforcement means that the January 13 deadline for companies to submit their reports will likely be delayed, as the legal battle over the CTA continues.

Meera Verma