Corporate Transparency Act Lashed by State Attorneys General (1)

Attorneys general from 25 Republican-led states on Thursday urged the US Supreme Court to keep in place a nationwide pause on enforcement of the Corporate Transparency Act, arguing that allowing the law to go into effect would harm their local economies.

The state AGs filed an amicus brief a day before Justice Samuel Alito’s deadline for a response to the Biden administration’s Dec. 31 request to lift the stay while litigation over the law’s constitutionality continues.

The law “raises all kinds of federalism red flags” and threatens to allow the federal government to intrude on aspects of commerce that should be regulated by the states, according to the brief led by Patrick Morrisey of West Virginia, Kris Kobach of Kansas, and Alan Wilson of South Carolina.

Litigation over the CTA—which was to require more than 32 million US businesses to file reports in the coming days listing information on their beneficial owners—has generated significant uncertainty after a federal judge in Texas issued an order last month blocking its enforcement nationwide. The US Court of Appeals for the Fifth Circuit overturned that decision and re instated the filing requirement, which was extended from the original Jan. 1 deadline, but then a separate Fifth Circuit panel paused that order.

The law’s mandates target money laundering and tax evasion done through anonymous shell companies.

In their brief, the state AGs said the federal government “reconceives” the US Constitution’s Commerce Clause to justify the CTA, which threatens fines if businesses don’t submit their reports to the Treasury Department’s Financial Crimes Enforcement Network.

They also called the law’s requirements costly to businesses and harmful to local economies.

“The CTA takes an unprecedented swipe at the quintessentially state-controlled area of corporate law,” the brief said. “Meanwhile, the costs from that unlawful move are staggering for the States and the people who live and work there.”

FinCEN estimates it will cost businesses 150 million hours and $30 billion to comply with the law. But the AGs said ithat number was “likely far too low.” The states themselves will face “significant” compliance costs as well, such as educating the public and collecting and reporting sensitive data to FinCEN, they said.

What’s more, the requirement that businesses file ownership information at the time they are incorporated means they are being regulated before they have engaged in commerce at all, and so the government’s justification that the CTA substantially affects interstate commerce also is invalid, the brief said.

The conservative Eagle Forum Education & Legal Defense Fund also filed an amicus brief Thursday which called it a “burdensome intrusion” that raised a number of constitutional concerns while addressing “conclusory and superficial” concerns about money laundering.

Firearms retailer Texas Top Cop Shop Inc. brought the lawsuit that led to a judge in the US District Court for the Eastern District of Texas issuing the first and so far only nationwide injunction against its enforcement.

The case is Garland v. Texas Top Cop Shop Inc., U.S., No. 24-653, amicus brief 1/9/25.