A new lawsuit has been filed in a Michigan court challenging the constitutionality of the Corporate Transparency Act (CTA). The Small Business Association of Michigan and other plaintiffs filed a federal lawsuit seeking declaratory judgment and injunctive relief against the U.S. Treasury. This legal challenge comes after a similar case in Alabama found the CTA to be unconstitutional and barred the U.S. Treasury from enforcing it against NSBA members.
The CTA was passed in 2021 as part of the National Defense Authorization Act for Fiscal Year 2021 and requires certain companies to file reports identifying beneficial owners with FinCEN. The goal of the CTA is to combat money laundering, terrorism financing, and other illicit activities. However, the plaintiffs argue that the CTA places significant burdens on small businesses, as it exempts larger enterprises from reporting requirements. They claim the cost of compliance with the CTA will be borne by small businesses, estimating it to be $21.7 billion in 2024 and $3.3 billion each year afterward.
The plaintiffs argue that the CTA is unconstitutional, treating law-abiding citizens as criminals without evidence of wrongdoing. They claim the requirement to report private information, such as copies of licenses and passports, is an overreach that violates the Fourth Amendment. The CTA’s confusing rules and extensive reporting requirements, the plaintiffs argue, further burden small businesses, who may not have anticipated the additional compliance when forming their businesses.
The SBAM, Chaldean American Chamber of Commerce, and individual business owners are among the plaintiffs seeking declaratory judgment and injunctive relief in the lawsuit. They argue that the CTA is an overreach and unconstitutional, and are seeking to prevent the U.S. Treasury and other government agencies from enforcing it. SBAM, a statewide association serving Michigan’s small business community, has been active in educating its members about the CTA, which they claim the federal government has not adequately done.
Brian Calley, President & CEO of SBAM, stated that the CTA creates a complex and vague compliance structure that adds financial and administrative burdens to small businesses. Non-compliance or incomplete filings can result in severe consequences, including fines and prison time, for unintentional violations of the law. Calley argues that the CTA, intended to identify criminals, could instead ensnare millions of accidental violators and must be corrected by the judicial system to uphold checks and balances.
The case, Small Business Association of Michigan et al v. Yellen, is currently pending in the Western District Court of Michigan. The plaintiffs are seeking relief from the burdensome and unconstitutional provisions of the CTA, which they claim unfairly target small businesses and violate their constitutional rights. The outcome of this lawsuit could have significant implications for small businesses and the enforcement of the CTA nationwide.
