Morris, Nichols, Arsht & Tunnell LLP
MONTH-IN-BRIEF (Mar 2024)
Federal Court Declares Corporate Transparency Act Unconstitutional
On March 1, 2024, the U.S. District Court for the Northern District of Alabama struck down the Corporate Transparency Act (CTA) and held that it exceeded Congress’s authority under the Constitution. At stake is the entire superstructure of collection and maintenance of beneficial ownership information (BOI) that, in turn, has given rise to increased (and possibly ill-advised) ethical responsibilities for business lawyers under the ABA’s newly adopted amendments to Model Rule 1.16.
The case arose in November 2022, when National Small Business United, d/b/a the National Small Business Association (NSBA), and a major shareholder of an NSBA member filed suit against the Treasury Department and its Financial Crimes Enforcement Network (FinCEN). The plaintiffs sought a declaratory judgment that the CTA is unconstitutional, because it exceeds Congress’s authority under Article I of the Constitution and, in addition, violates the First, Fourth, Fifth, Ninth, and Tenth Amendments.[1] Plaintiffs also sought an injunction preventing enforcement of the CTA against them.