A recent lawsuit, William Boyle v. Yellen, has been filed in the Federal District Court in Maine challenging the constitutionality of the Corporate Transparency Act (CTA). This lawsuit mirrors the case in the Federal District Court for the District of Alabama, National Small Business Association v. Yellen, where the CTA was deemed unconstitutional. The new legal challenge presents three main arguments, including infringement on state authority, overreach of Congressional authority, and coercion of state agencies.
The lawsuit argues that the CTA infringes upon state sovereignty by imposing a federal standard for incorporation, which is traditionally under the states’ jurisdiction. It also contends that the regulation of corporate formation falls outside of Congress’s enumerated powers, such as managing foreign affairs or regulating commerce, and therefore violates the principles of federalism and state autonomy.
Another key argument in the lawsuit is that the CTA compels state agencies to distribute the CTA filing form and inform entities about the reporting requirements, thereby undermining state sovereignty. Additionally, the plaintiff argues that the CTA infringes on personal rights by mandating the disclosure of sensitive personal information to FinCEN, solely based on being the beneficial owner of real estate holding limited liability companies.
However, there are arguments supporting the legitimacy of the CTA, including Congress’s constitutional authority to regulate interstate commerce and impose taxes, which the CTA is seen as a tool to oversee commercial activities impacting interstate commerce. The government argues that the CTA is crucial for national security and to prevent illegal financial operations such as money laundering and financing terrorism.
Proponents of the CTA also cite existing regulations and legal precedents mandating the disclosure of personal information for regulatory and law enforcement objectives, such as the Bank Secrecy Act and the USA PATRIOT Act. They emphasize that the CTA incorporates measures to protect the confidentiality and security of disclosed information, with access limited to authorized entities and stringent penalties for unauthorized access.
Lastly, supporters of the CTA argue that the Act’s mandates are narrowly defined, offering exemptions for certain organizations like publicly traded companies and those with significant revenue and employees. They assert that federal oversight of corporate entities is necessary to prevent financial crimes that extend beyond state lines. Ultimately, the courts will decide the legitimacy of these arguments based on the U.S. Constitution, Congressional authority, and the balance between regulatory objectives and individual freedoms. Nevertheless, current compliance by recording companies with the CTA’s stipulations and deadlines suggests its prevailing legal status.
