A Texas federal judge issued a nationwide preliminary injunction Tuesday to prevent the enforcement of a landmark U.S. anti-money-laundering law, saying it exceeded Congress' constitutional authority and is thus likely unconstitutional.
Known as the Corporate Transparency Act, part of the law requires corporations to disclose detailed information about the ownership of U.S. legal entities to Treasury's Financial Crimes Enforcement Network, or Fincen. The law is aimed at combating illicit activity disguised using shell companies — anonymous businesses without physical presences or independent economic value.
U.S. District Judge Amos Mazzant, presiding over the U.S. District Court for the Eastern District of Texas, found the law intrudes on state sovereignty and exceeds congressional authority.
"[I]t is not for [the Court] to substitute [its] view of ... policy for the legislation which has been passed by Congress," Judge Mazzant wrote in the lengthy opinion. "Modern problems may well warrant modern solutions, but modernity does not grant Congress a roving license to legislate outside the boundaries of our timeless, written Constitution."
The plaintiffs in the case argued the law imposes unconstitutional mandates by requiring companies to report private ownership details, eroding privacy and violating the balance of federal and state powers. The court sided with this view, emphasizing Congress' lack of authority in such matters despite the law's intended policy goals.
With the decision — which came in response to a motion filed by plaintiffs in Texas Top Cop Shop, Inc., et al. v. Merrick Garland — the court temporarily blocked enforcement of the CTA and its reporting rules, including nullifying the requirement that U.S. businesses report beneficial ownership information by January 1, 2025.
The ruling lifts businesses' requirement to report ownership details for the time being, but the injunction could be reversed by future rulings. The Department of Justice is expected to file an appeal, which would escalate the matter to higher courts for resolution.
Anti-corruption advocate Ian Gary — executive director of the Financial Accountability and Corporate Transparency Coalition — said he was disappointed in the ruling.
"This wrong-headed injunction is a Christmas gift to criminals who use anonymous shell companies to traffic fentanyl, exploit people and hide dirty money," said Gary. "The law is clearly constitutional and Congress was well within its powers to pass the law to defend America and protect our financial borders. Multiple other federal courts have reached the opposite conclusion and denied injunctions in similar cases, so we expect the government to move to stay this outlier order promptly."
The 2021 law was hailed as the most significant anti-money-laundering legislation in decades by anti-corruption and transparency advocates. Some of the law's harshest critics, however, come from the financial industry, with some banking groups arguing it adds unnecessary burdens without delivering meaningful benefits.
The American Bankers Association — who
Banking groups also warned that the rule could result in duplicative reporting requirements for banks and small businesses, further complicating compliance efforts. Congressional critics echoed these concerns,
