The National Small Business Association and one of its individual members have obtained a decision from the Northern District of Alabama declaring the federal Corporate Transparency Act unconstitutional because it exceeds Congress's powers. The Government has appealed to the Eleventh Circuit. The parties have agreed to an expedited briefing schedule, under which amicus briefs supporting the Plaintiffs will be due on May 20, 2024.
With exceptions for larger businesses and certain regulated businesses/industries, the CTA requires “reporting companies" to disclose personal information about their “beneficial owners" and “applicants" to the Treasury Department's Financial Crimes Enforcement Network, for inclusion in a database, used for criminal law-enforcement purposes, that can be shared with other domestic and foreign governments. 31 U.S.C. § 5336(b)(1)(A). Personal information includes full legal names, dates of birth, addresses, and “unique identifying number from an acceptable identification document," which by regulation means an image of their photo IDs. The CTA makes the willful failure to provide the required disclosures a crime punishable by fine or imprisonment. Congress justified the CTA in a claimed need to combat the use of American shell companies for money laundering and terrorism financing, even though bad actors are unlikely to comply in any event, and the burdens of compliance will largely fall on wholly innocent small businesses, or on individuals who use entities for personal estate-planning or property-holding purposes.
The CTA became law on January 1, 2021. As to companies formed after January 1, 2024, Fin-CEN's disclosure obligations commence on April 1, 2024. As to companies formed prior to January 1, 2024, Fin-CEN requires initial disclosures to be made by January 1, 2025.
Plaintiffs filed suit in November 2022, alleging that the CTA was facially unconstitutional because it was beyond Congress's enumerated powers and violated the First, Fourth and Fifth Amendments.
After the parties agreed to an expedited briefing schedule, the District Court granted summary judgment to the Plaintiffs on March 1, 2024. The District Court held that the CTA was beyond Congress's enumerated powers and did not reach the Plaintiffs' claims under the First, Fourth and Fifth Amendments. The federal government appealed this decision on March 11, 2024 to the United States Court of Appeals for the Eleventh Circuit.
The consensus by community association lawyers is community associations incorporated at the state level will be impacted by this new law and will have a responsibility to file information with FINCEN through the Beneficial Ownership Information (BOI) reporting requirements. The Beneficial Ownership Information (BOI) reporting program is slated to be implemented with filings beginning January 1, 2024. The current filing deadline for existing corporations is January 1, 2025. The filing is not yet open.
The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) published a statement recognizing the charitable sector that operates domestically presents a low risk for money laundering terrorism financing risk.
The Corporate Transparency Act intends to detect and report suspicious activity including predicate offenses to money laundering and terrorist finance, to facilitate tracking money that has been sourced through criminal or terrorist activity to safeguard the national security and the financial system of the U.S.
This Act was not intended to apply to volunteer-driven nonprofit corporations that are locally based with the sole purpose of providing municipal-like services to residents. This amicus brief will allow the community association industry to voice the negative impact the CTA has on 30% of the housing in the United States to the 11th Circuit.
Amicus Brief
Court: United States Court of Appeals for the Eleventh Circuit
Topic: Corporate Transparency Act
Brief Author: Edmund Allcock, Esq., CCAL; Norman Orban, Esq., Julie Howard, Esq., CCAL; Brendan Bunn, Esq., CCAL; Thomas Ware, Esq., CCAL, Todd Sinkins, Esq., CCAL, and Steven Casey, Esq.
Filed: May 20, 2024
CAI Amicus Review Panel:
Mr. Robert Diamond, Esq., CCAL, Co-Chair of Amicus Committee (VA)
Mr. Edmund Allcock, Esq., CCAL, Co-Chair of Amicus Committee (MA)
Mr. Augustus Shaw, Esq., CCAL, CCAL BOG Liaison (AZ)
Mr. Gary Daddario, Esq., CCAL (NH)
Ms. Noelle Hicks, Esq. (TX)
Ms. Todd Skorowski, Esq. (MI)
Mr. Brian Fellner, Esq. (MD)