The Department of Justice has filed an emergency motion with the U.S. Supreme Court asking it to lift the injunction on the reporting requirement for beneficial ownership information under the Corporate Transparency Act, after a The federal appeals court reversed itself about last week’s ruling.
The 2021 law requires companies to report their actual ownership to the Treasury Department’s Financial Crimes Enforcement Network starting January 1, 2025, as a way to deter illegal activities by shell companies, but given the legal back-and-forth, the requirement postponed. from FinCEN. At the Ministry of Justice application for a suspension of the order, that was issued by a federal district court in Texas last month.
In the filing, the DOJ explains the rationale for the beneficial ownership requirement. “Congress found that malicious actors often conceal their ownership of companies and other entities to facilitate illegal activities such as money laundering, tax fraud, human and drug trafficking, and the financing of terrorism,” the filing said. “Congress determined that requiring companies to report information about their owners would enable the government to detect and prosecute financial crimes, discourage the use of shell companies for illegal activities, and strengthen national security and intelligence efforts. to facilitate the government.”
The request comes from Attorney General Merrick Garland, Treasury Secretary Janet Yellen, the Financial Crimes Enforcement Network and FinCEN Director Andrea Gacki.
The CTA requires organizations to report to the federal government information about their beneficial owners, that is, individuals who exercise substantial control over the entity or own or control 25% of the ownership interests. Covered entities must provide the names, dates of birth, addresses and unique identification numbers of their beneficial owners (for example, driver’s license or passport numbers).
The DOJ pointed to several reasons why the Supreme Court should vacate the order, noting that the order was overbroad and went beyond the original plaintiffs who filed the lawsuit.
“Respondents – four entities covered by the law, an individual associated with one of those entities, and a membership organization – filed this lawsuit challenging the constitutionality of the law,” the DOJ said. “The district court granted respondents preliminary injunction, finding that they were likely to succeed on their claim that the statute, on its face, exceeds Congress’s enumerated powers. Although the respondents had sought relief only on their behalf, the court entered a universal injunction that purported to impose the law itself and prohibit the enforcement of the law even against non-parties. A Fifth Circuit motions panel stayed that order, but days later a merits panel lifted the stay. reinstated universal injunction without any analysis of the government’s likelihood of success on the merits or relative harm to the parties. This Court should stay the district court’s order.”
The plaintiffs in the case are Texas Top Cop Shop, Inc.; Data Comm for Business, Inc.; Libertarian Party of Mississippi; Mustard Seed Cattle, LLC; National Federation of Independent Businesses, Inc.; and Russel Straayer.
The DOJ argued that the government is likely to succeed based on the merits of the claim: “The law’s reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism . requirements are therefore well within Congress’ authority under the Commerce Clause to regulate economic activities (in this case, the anonymous operations of business entities) that have a substantial impact on interstate commerce. The requirements are also necessary and appropriate to give effect to various enumerated powers of Congress, including the power to regulate interstate and foreign commerce and to collect taxes, as well as the powers of Congress relating to foreign affairs. Even if there could be exceptional circumstances in which the law might be thought to exceed the powers of Congress with the Constitution in most of its applications, which is sufficient to defeat respondents’ facial challenge.”
The DOJ argued that the district court issued its universal injunction after two other district courts held that the CTA was likely constitutional and denied preliminary injunctive relief requests that raised substantially similar constitutional claims. A third court denied a request for injunctive relief because the plaintiffs had failed to prove irreparable harm. The DOJ acknowledged that a district court found that the CTA violated the Constitution, but issued an order in that case that affected only the plaintiffs, specifically the members of the National Small Business Association.
The DOJ provided further reasons why the Supreme Court should stay the district court’s universal injunction, saying it “irreparably harms the federal government in multiple ways.”
“It prevents the Administration from carrying out a duly enacted law of Congress, hampers efforts to prevent financial crimes and protect national security, undermines the ability of the United States to pressure other countries to adopt their own anti-money laundering regimes.” improve, and seriously disrupt the continued implementation of the law,” the DOJ said. “In contrast, the law imposes only minimal burdens on respondents. At the very least, this Court should limit the district court’s overbroad order. An equitable court can grant relief only to the parties before it. The district court violated that principle by issuing a universal injunction intended to self-enforce the law and prohibit enforcement of the law even against non-parties.
The DOJ believes the matter should ultimately be decided by the Supreme Court and said the request for a stay can be treated as a petition for writ of certiorari.
“Several members of this Court have recognized that such universal exemptions contradict Article III and have established equitable principles, and have urged clarification of these principles in an appropriate case – but the Court’s prior determination on a threshold procedural issue or the merits in previous cases, the need to resolve the issue of resolution has been resolved,” the DOJ said. “In addition, because the lower courts need guidance on the propriety of universal injunctions, this Court may wish to treat this petition as a petition for writ of certiorari before ruling on the question whether the district court erred in granting preliminary injunctive relief has established a universal basis. “
“The DOJ argues that this case would be an ideal vehicle to address the legality of universal aid,” wrote Ed Zollars, owner of Thomas, Zollars & Lynch, in Kaplan Financial Education’s Current blog on federal tax developments. “In summary, the DOJ’s arguments for a stay focus on the importance of allowing duly enacted laws to remain in effect, the likelihood of success on the merits, and the serious harm to the government and the public that would result from command. allege that the court’s order was inappropriately broad.”