Karen Budd-Falen provides CTA Act update at WSGA convention

During the 2024 Wyoming Cattle Industry Convention and Trade Show, hosted by the Wyoming Stock Growers Association, Budd-Falen Law Offices, LLC Senior Partner Karen Budd-Falen provided an update on the Corporate Transparency Act (CTA) to convention attendees.

According to the Financial Crimes Enforcement Network (FinCEN), enacted in 2021 as part of the National Defense Authorization Act, the CTA requires certain legal entities to register with FinCEN and to disclose their ultimate, natural person beneficial owners.

The CTA was enacted to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity, while minimizing the burden on entities doing business in the U.S., but the FinCEN’s final rule became effective on Jan. 1.

“The CTA was designed to combat money laundering and other financial crimes by requiring a broad range of entities to disclose personal information about their owners and persons who exercise control to the FinCEN, a bureau of the U.S. Treasury,” Budd-Falen stated.

Under the CTA Act, reporting companies are required to comply and file their initial reports by Jan. 1, 2025. 

Reporting companies must provide four pieces of information – name, date of birth, address and the identifying number and issuer from either a non-expired driver’s license or a U.S. passport issued by the state.

According to the American Bar Association, penalties for not complying with the CTA possibly include a fine of $500 per day, up to $10,000 per violation, with the possibility of up to a two-year term in prison.

CTA court case

The CTA Act was designed to enhance the federal government’s ability to combat financial crimes and has recently faced significant legal challenges.

Six weeks after FinCEN released its final rule, plaintiffs Isaac Winkles and the National Small Business Association brought suit in the Northern District of Alabama against the U.S. Treasury.

“An Alabama federal court’s ruling has temporarily enjoined the enforcement of the CTA as to the plaintiffs in the case, sparking a series of legal debates and appeals,” Budd-Falen explained.

The March 1 ruling by the U.S. District Court for the Northern District of Alabama ruled the CTA is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers.

Budd-Falen stated, “It’s a good policy to remove bad actors, but it’s not enough to allow Congress to violate constitutionally guarantee rights.”

According to case documents, the court held the plaintiffs did have standing and the legislative powers cited by the government do not provide sufficient authority for the CTA but the plaintiffs argue the CTA violates the first, fourth and fifth amendments. However, the court did not address these arguments.

Budd-Falen noted while the objectives of the CTA may be well intentioned, the act imposes excessively on states’ rights to regulate legal entities within their borders and encroaches upon the privacy rights of U.S. citizens.

“In this case, the second point they argued focused on the Commerce Clause. The CTA Act does not mention the word ‘commerce’ once, and this is a regulation that’s simply gone too far being justified on the Commerce Clause,” she said.

Judgement

In reaching its decision, the district court first held no authority exists for Congress under the Necessary and Proper Clause to carry out foreign affairs powers because those powers do not extend to “purely internal affairs” and the act of incorporation is an arena traditionally reserved for state regulation. 

As to the Commerce Clause, the district court found the CTA does not regulate channels and instrumentalities of interstate commerce on its face nor does it regulate commercial or economic activity. 

The mere act of incorporation, according to the district court, is insufficient to permit regulation under the Commerce Clause, and according to the court, it would be “a substantial expansion of federal authority to permit Congress to bring its taxing power to bear just by collecting useful data and allowing tax-enforcement officials access to this data.”

However, on March 4, FinCEN issued guidance in response to the court’s opinion, stating they will comply with the court’s order as long as it remains in effect.

Across the country, another party in the Northern District of Ohio has filed a similar lawsuit, but this one seeks a nationwide injunction against the enforcement of the CTA.

Closer to home

Lingle resident and Business Owner Tony Goulart feels the CTA widely oversteps its bounds in terms of entitled freedoms of small business owners, while requirements to be submitted by January 2025 are unconstitutional.

According to an article in the June 7 Torrington Telegram, written by Jess Oaks, Goulart owns and operates Lingle’s Mustardseed Livestock, LLC and has joined a federal lawsuit with five other small corporation plaintiffs throughout the nation in hopes of bringing an end to something he feels will have detrimental long-term consequences.

“It’s designed in such a way where they decide if we are compliant, and if they decide we are not compliant we have to start all over and are looking at serious fines and sanctions. One of the things I have heard several attorneys speaking about with these things is they don’t even know what to tell their clients because it is so vague and poorly written,” says Goulart in the article. 

“It’s the smallest of corporations and the smallest businesses they are going after. All of this is an effort to prevent money laundering and terrorism financing, but if I don’t agree to provide the government with certain information I feel is none of their business, I will be looking at fines which could possibly destroy me and even land me in prison,” he continues.

Other plaintiffs involved in the lawsuit include Texas Top Cop, Inc.; Data Comm for Business, Inc.; Russell Straayer; the Libertarian Party of Mississippi and the National Federation of Independent Business.

On April 30, Rep. Warren Davidson (R-OH) introduced the Repealing Big Brother Overreach Act alongside 11 other colleagues and support from Rep. Harriet Hageman (R-WY). 

This legislation repeals the CTA Act and provides American business owners, specifically small business owners, relief from burdensome reporting requirements and excessive penalties.

According to Davidson, “FinCEN is violating the personal privacy of American business owners by forcing them to disclose sensitive information. The CTA must be repealed, and Congress must ensure the federal government fits within the Constitution. This is why I’m introducing this legislation and asking my colleagues to join me to pass it.”

Melissa Anderson is the editor of the Wyoming Livestock Roundup. Send comments on this article to roundup@wylr.net.