[co-author: Stephanie Kozol]*
On June 3, the U.S. Treasury Department filed a reply in its 11th Circuit litigation[1] against the National Small Business Association regarding the constitutionality of the Corporate Transparency Act (CTA). Of late, the Treasury Department has faced additional pressure and scrutiny, with 22 states filing a joint amicus brief last month, asserting that the CTA displaces state authority and would economically harm residents.
The CTA, which was enacted in 2021, requires businesses to identify their beneficial owners and any changes in ownership. Under the CTA, the newly required disclosures are compiled into a database by the Treasury’s Financial Crimes Enforcement Network (FinCEN). The goal of the CTA, as articulated by FinCEN, is to “protect[] the U.S. financial system, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering.”
The states, led by West Virginia, have expressed concern that the CTA overreaches because it “takes an unprecedented swipe at the quintessentially state-controlled area of corporate law.” On the other hand, the Treasury, whose arguments are premised in large part on the broad powers afforded to the federal government pursuant to the Commerce Clause, argues that the objectors have not “identif[ied] any covered business not engaged in economic activity,” such that they would not be subject to the commerce clause.
Takeaway
While consumer protection and corporate responsibility remain focal points of state attorney general (AG) attention, some states remain uncomfortable with the federal government’s exercise of similar power under the Commerce Clause. With that discomfort comes the challenge to and aspiration for the dissolution of federal legislation, especially when that legislation competes with state interests. Given the back and forth between developing federal legislation and corresponding state challenges, businesses and their stakeholders need to stay apprised of not just the promulgation of new federal legislation, but also the challenges from AGs seeking to invalidate such legislation.
[1] National Small Business United, dba National Small Business Association, and Winkles v. U.S. Department of the Treasury et al., Case No. 24-10736
*Senior Government Relations Manager
