The Clock is Ticking for Small Businesses

Unless the court acts soon in the constitutional challenge we filed last May, tens of millions of Americans could be subject to federal criminal prosecution on January 1. That’s the deadline the Corporate Transparency Act (CTA) set for small business owners to file reports divulging confidential information to federal law enforcement or face criminal penalties.

The CTA requires every small business and many nonprofits that are state-registered to file detailed reports about their “beneficial owners” with the Treasury Department’s Financial Crimes Enforcement Network. Beneficial owners include 25% shareholders, but also anyone who exercises “substantial control,” directly or indirectly, formally or informally. The broad language pressures people to disclose additional private information to avoid penalties, including $500 a day fines for incomplete reports.

On October 9, CIR’s Caleb Kruckenberg traveled to Texas to argue on behalf of a coalition of small businesses and nonprofits for a preliminary injunction that would stop the implementation of the CTA until the conclusion of our lawsuit. Speaking for our client the National Federation of Independent Business, Beth Milito explained the urgency of the preliminary injunction for the nearly 300,000 small business interests that her organization represents. “[T]ime is of the essence, and they need to know whether they must comply with a reporting requirement that mandates revealing private and personal identifying information.”

Federal District Judge Amos Mazzant appeared sympathetic to our concerns. The CTA was enacted under Congress’ interstate commerce powers, but as Mr. Kruckenberg argued, merely registering a business with a state is not interstate commerce. At oral argument, Judge Mazzant seemed especially concerned that the federal government could not identify any limiting principle that would constrain Congress in the future if the government’s argument was accepted.

In the words of CIR client Tony Goulart, president of Mustardseed Livestock LLC, a Wyoming dairy farm, “[T]he Corporate Transparency Act violates some of the most sacred Constitutional protections we enjoy as Americans. If we allow this to stand then we accept that there is no limit to how far government can intrude into the most private and intimate details of our lives.”

Our clients saw the absurdity of being swept up into a massive surveillance program, ostensibly aimed at combatting financial crime. “We’re a family business that has been serving the law enforcement community for the past seven years,” said Linda Schneider, co-owner of Texas Top Cop Shop, Inc., a first responder supply store. “But the CTA treats us, and small businesses everywhere, like suspected criminals. Running a business should be celebrated, not an excuse to put millions of honest people in the federal government’s crosshairs.”

CIR filed our lawsuit in May challenging the most intrusive federal effort to control small businesses in recent memory. Following the recent oral arguments, there is good reason for optimism that Judge Mazzant will not allow this unconstitutional power grab to take effect. And if so, that’s a strong indication of how he would eventually rule on the broader lawsuit.