Signage is seen at the United States Department of the Treasury headquarters in Washington, D.C.
A federal appeals court on Monday allowed the anti-money laundering law that requires corporate entities to disclose the identities of their real beneficial owners to the U.S. Treasury Department.
The decision of the three-judge panel of the New Orleans-based 5th U.S. Circuit Court of Appeal has put on hold a nationwide injunction issued earlier this month by a federal judge in Texas who had concluded that the Corporate Transparency Act was unconstitutional.
U.S. District Judge Amos Mazzant in Sherman, had on December 3 had ruled in favour of the National Federation of Independent Business and several small businesses ahead of a key January 1 deadline for entities to file initial reports under the law.
Monday’s ruling allowed the law to once again be enforced as the case proceeds.
The appeal court said the U.S. Department of Justice in defending the statute “made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality.”
The three-judge panel included U.S. Circuit Judges Carl Stewart and Stephen Higginson, both appointees of Democratic presidents, and U.S. Circuit Judge Catharina Haynes, an appointee of Republican former President George W. Bush.
Haynes partly dissented from the decision, agreeing that a nationwide injunction was not appropriate but saying she would have kept it in place for the plaintiffs, including NFIB’s members.
The group of 300,000 companies was represented by the Center for Individual Rights, whose president, Todd Gazianno, vowed a further appeal.
The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) after Monday’s ruling notified businesses that the reporting requirement was back in effect, but extended deadlines to file reports to January 13.
The bipartisan law was enacted as part of an annual defense spending bill toward the end of Republican President-elect Donald Trump’s first term in early January 2021.
Under the law, corporations and LLCs were required to report information concerning their beneficial owners to FinCEN, which collects and analyzes information about financial transactions to combat money laundering and other crimes.
The measure’s supporters said it was designed to address the country’s growing popularity as a haven for criminals to launder illicit funds by setting up entities like limited liability companies under state laws without disclosing their involvement.
The law has faced several legal challenges, and Mazzant’s decision marked the first time a judge in one of those cases had blocked the law nationwide, though a federal judge in Alabama had issued a more limited injunction that is now on appeal.
Mazzant held that Congress had no authority under its powers to regulate commerce, taxes and foreign affairs to adopt the “quasi-Orwellian statute” and that it likely violated states’ rights under the U.S. Constitution’s Tenth Amendment.
Monday’s 5th Circuit panel, however, said the reporting requirement fell within Congress’ broad authority under the U.S. Constitution’s Commerce Clause to regulate economic activity that would have an effect on interstate commerce.