The Financial Crimes Enforcement Network (FinCEN) is the U.S. Department of the Treasury’s newest tool in deterring businesses from committing financial crimes like tax evasion and money laundering through the use of shell corporations or pass-through entities. Enacted into law by Congress as part of the “William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021”, under Section 6401 titled the “Corporate Transparency Act” (CTA), the CTA requires all individuals who “…[exercise] substantial control…” or “…owns or controls not less than 25 percent of the ownership interests in…” a business entity to report their position and identity to FinCEN.[1] The provision came into effect January 1, 2024, requiring millions to register with FinCEN by January 1, 2025, or within ninety (90) days for entities created in since January 1, 2024.
However, the new law didn’t sit well with all businessowners. Isaac Winkles, a small business owner, and the National Small Business Association (NSBA) challenged the constitutionality of the CTA in the U.S. District Court for the Northern District of Alabama. In a memorandum opinion, District Judge Liles C. Burke ruled in favor of Winkles and the NSBA, with the crux of his reasoning being that the CTA “…cannot be justified as an exercise of Congress’ enumerated powers.”[2]
The Court did not rule that the First, Fourth, and Fifth Amendments were violated by the CTA, only that Congress had exceeded their reach in passing the law as is. Additionally, the order only applies to the Plaintiffs, not all businessowners, and the precedent exists only in the 11th Federal Circuit Courts (comprised of Alabama, Georgia, and Florida). There will likely be an appeal by the Department of the Treasury which will likely take much longer than the ninety (90) days that new businesses have to register with FinCEN.
What does this mean for Indiana businessowners? It means that there could be changes in the requirements for FinCEN in the near future, but presently all businesses that fall under FinCEN reporting requirements must still register or risk incurring penalties for failure to adhere to the current law.
[1] See Corporate Transparency Act, Pub. L. No. 116-283, tit. LXIV, §6403, 134 STAT. 4605-06 (2021) (codified at 31 U.S.C. § 5336 (2021)).
[2] Nat’l Small Bus. United v. Janet Yellen, in her official capacity as Secretary of the Treasury (Case No. 5:22-cv-1448-LCB), 52 (N.D. Ala., Mar. 1, 2024).
Written By: Hayden C.T. Parsons
