In a significant setback for the Biden administration’s campaign to enhance corporate transparency, an Alabama federal district judge has declared that the Treasury Department’s mandate requiring small business owners to disclose details about their ownership and beneficiaries is unconstitutional. This ruling, delivered late Friday by U.S. District Judge Liles C. Burke, challenges the foundational aspects of the Corporate Transparency Act, a pivotal piece of anti-money laundering legislation incorporated into the National Defense Authorization Act for Fiscal Year 2021.

The Corporate Transparency Act (CTA) is a law that requires certain businesses to report information about their owners and controllers. The CTA is part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA) and was enacted in 2021. The CTA aims to prevent illegal acts such as money laundering, financing of terrorism, and other misconduct. The CTA requires millions of small businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).

It’s a piece of legislation that could expose the personal information of adult performers, making their personal details available in public databases.

The judgment against it, emerged from a lawsuit filed by the National Small Business Association in November 2022, aimed at obstructing the enforcement of a regulation that necessitated tens of millions of small businesses to register with the federal government. This measure was designed as a strategy to prevent the misuse of anonymous shell companies for criminal activities. However, the small business advocacy group contended that the requirement not only burdens small enterprises disproportionately but also infringes upon constitutional rights to privacy and free speech and encroaches upon the state’s authority over business governance.

Judge Burke, a former President Donald Trump nominee, criticized the Corporate Transparency Act as “congressional overreach,” asserting that it could not be defended as a legitimate exercise of Congress’s enumerated powers. This ruling underscores the ongoing tension between the government’s endeavors to trace criminal financial activities and the imperative to safeguard individual privacy rights. The clash is particularly poignant in the context of the U.S. government’s sanctions against Russian oligarchs and allies of President Vladimir Putin in the wake of Ukraine’s invasion.

The Treasury Department, while adhering to the court’s injunction, highlighted the bipartisan support the Corporate Transparency Act received upon its enactment, underscoring its intent to dismantle illicit shell companies and thwart financial crimes. A spokesperson referred further inquiries to the Justice Department, emphasizing ongoing compliance with the court’s directive.

Ian Gary, the executive director of the FACT Coalition, a nonprofit organization advocating for corporate transparency, criticized the ruling favoring criminal activities. He expressed concerns that the decision would erode the rule of law and facilitate criminals’ concealment of illicit funds through anonymous shell companies.

This ruling represents a pivotal moment in the ongoing debate over corporate transparency and privacy rights and sets a significant precedent for regulating small businesses in the United States. As the legal battle unfolds, the implications of this decision will resonate across the political and economic landscape, underscoring the delicate balance between combating financial crime and upholding constitutional liberties.