FACT Coalition Torches Plaintiff in CTA Constitutionality Case

The Financial Accountability & Corporate Transparency ("FACT") Coalition and two similarly-minded organizations torched plaintiff National Small Business United in a "friend of the court" (or "amicus") brief filed in that case last week. The brief underscored the importance of fighting money laundering by ending the practice of corporate anonymity.

The FACT Coalition

The FACT Coalition is a non-partisan alliance of more than 100 state, national, and international organizations promoting policies "to build fair and transparent global financial systems and to combat money laundering, terrorist financing, and illicit finance." Transparency International U.S. is part of a global coalition "dedicated to fighting corruption, partnering with businesses, governments, and citizens to promote transparency and develop and implement effective measures to tackle and deter corruption." And Main Street Alliance is a "small business membership organization that advocates for and engages with small businesses around issues that matter the most for businesses and their employees," according to the Amicus Brief filed last week in the U.S. District Court for the Northern District of Alabama.

The Plaintiff's Challenge

The plaintiff in the case, National Small Business United, claims to represent 65,000 small businesses in the U.S. that do not want to bear the burden of filing BOI Reports under the Corporate Transparency Act.

In its complaint and its motion for summary judgment, NSBU claims that Congress exceeded its constitutional authority when it adopted the CTA. While Congress has the constitutional authority under the Constitution's Commerce Clause, NSBU claims that this authority does not empower Congress to require businesses to file BOI Reports with FinCEN when businesses form corporate entities. The act of forming a corporate entity, NSBU argues, is a "ministerial act" that does not constitute "commerce among the states" as envisioned by the Constitution.

The Arguments

NSBU and Treasury agreed at an early stage in the case that they would not need to engage in discover and that the case would be ripe for adjudication based on their competing motions for summary judgment. In essence, their competing motions will give this federal court the opportunity to determine whether the Corporate Transparency Act is constitutional.

As a matter of legal procedure, this means that the opposing parties agree on the material facts of the case and that the issues presented are solely issues of law that can be decided by the court (without the need of a jury). The parties agreed, with the concurrence of the court, on an expedited schedule for the case.

The plaintiff filed its motion for summary judgment earlier this year and Treasury filed its responsive and competing motion just a few weeks ago.

The FACT Coalition and its fellow "friends of the court" (or "amici") obtained permission from the court to file their own brief, essentially backing up the positions taken by Treasury. While Treasury's brief primarily took aim at prior federal appellate cases that interpreted the Commerce Clause and the other constitutional issues raised by the plaintiff, the Amicus Brief devoted most of its 24 pages to a description of the need for the CTA and relatively light burden it imposes of businesses.

The Amicus Brief cited a variety of sources for the proposition that "anonymous corporations play a central role in global money laundering and corruption." (Amicus Brief at 2). One of the facts that prompted Congress to adopt the CTA, on a bipartisan basis, was that the United States has become "the best place to hide and launder ill-gotten gains" precisely because of the U.S. tradition of corporate anonymity. They cited a Treasury Department study that estimated that more than 2 percent of U.S. GDP constituted illicit funds being laundered through the U.S. financial system. Eliminating anonymity through the confidential report system imposed by the CTA, they argued, is necessary to give U.S. law enforcement the requisite tools to fight money laundering.

The Amicus Brief also disputed NSBU's claim that the CTA's reporting obligations would be "burdensome" for small business. The amici cited several examples (applying for a drivers license, applying for a bar license, applying for a library court) of legal arrangements that require a similar or even greater level of self-identification.

Next Steps

The scheduling order in the case gives NSBU until May 2, 2023 to file a response to Treasury's brief and motion for judgment in its favor. After that, Treasury will have until May 25, 2023 to respond. The court has not given itself a deadline rule on the outcome.

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