US appeals court halts enforcement of anti-money laundering law

By Nate Raymond

(Reuters) – A U.S. appeals court has halted enforcement of an anti-money laundering law that requires corporate entities to disclose the identities of true beneficial owners to the U.S. Treasury Department ahead of a deadline for most companies to do so.

The 5th U.S. Circuit Court of Appeals in New Orleans on Thursday reinstated a nationwide injunction that had been issued earlier this month by a Texas federal judge who found the Corporate Transparency Act unconstitutional.

The order marked a change in direction for the court. On Monday, a three-judge panel of the 5th Circuit, at the urging of the US Department of Justice, stayed the order while the government appealed the Texas judge’s decision.

But another panel will ultimately decide whether to uphold the judge’s ruling, and in Thursday’s order, the court said it decided to keep the law suspended “to preserve the constitutional status quo while the trial panel takes considering the serious substantive arguments of the parties. “

Most companies had, before Thursday’s order, a Jan. 13 deadline to submit their initial reports to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

The ordinance had been obtained by the National Federation of Independent Business, which along with several small businesses challenged the law through lawyers at the conservative Center for Individual Rights.

“Given that we have determined that the CTA is likely unconstitutional, this intrusive form of government surveillance should be halted until the fate of the law is finally resolved,” Todd Gaziano, president of the Center for Individual Rights, said in a statement.

FinCEN did not respond to requests for comment.

Under the law, which was passed in 2021, corporations and LLCs were required to report information about their beneficial owners to FinCEN, which collects and analyzes financial transaction information to fight money laundering and other crimes.

Supporters of the measure said it was designed to address the country’s growing popularity as a place for criminals to launder illicit funds by setting up entities such as limited liability companies under state law without disclosing their involvement.

U.S. District Judge Amos Mazzant of Sherman, Texas, ruled Dec. 3 that Congress had no authority under its powers to regulate commerce, taxes and foreign affairs to enact the “quasi-Orwellian statute” and that it likely violated states’ rights under the US. Tenth Amendment to the Constitution.

(Reporting by Nate Raymond in Boston; Editing by Chizu Nomiyama)