Judge Refuses to Block Enforcement of New Corporate Transparency Act

By Maxine Bernstein
oregonlive.com
(TNS)

A federal judge in Portland Friday declined to block the enforcement of a federal law that Congress passed in 2021 to combat money laundering, financing of terrorism or tax evasion.

U.S. District Judge Michael H. Simon denied a motion for a preliminary injunction filed by seven people who argued that the federal Corporate Transparency Act’s requirements to report sensitive personal identifying information violated their constitutional rights.

Seven small business owners—Michael Firestone, Lindsay Berschauer, Katerina Eyre, Tayler Hayward, Lisa Ledson, Thomas Reilly, and Gerald Earl Cummings II—filed the suit.

During a hearing earlier this month, attorney Thomas R. Rask III argued on behalf of the small business owners that the federal Commerce Clause does not grant the government the authority to compel people to turn over their birth date, their driver’s license, Social Security number or other personal identifying information simply because they associate with a certain company.

Further, he argued that the federal act could be used to enforce federal drug laws against Oregonians who own marijuana or psilocybin businesses, which are legal under state law, or pursue deportation of people who are not in the U.S. legally but allowed to register and operate businesses under Oregon law.

Under the federal act, certain business entities are required to file what’s called “beneficial ownership” information about their owners, officers, and other persons who have some controlling interest with the U.S. Treasury’s Financial Crimes Enforcement Network, known as FinCEN.

Congress defined “beneficial owner” as someone who directly or indirectly “exercises substantial control over the entity,” or owns or controls not less than 25% of the ownership interests of the entity.

To comply, a reporting company must report the legal name, date of birth, residential or business address, and a “unique identifying number from an acceptable identification document,” such as a driver’s license or passport, of each beneficial owner.

The initial reporting requirements went into effect Jan. 1, and penalties for noncompliance include substantial fines and imprisonment.

“The CTA is a serious breach of Plaintiffs’ rights to privacy, their right to not have law enforcement rifle through their personal information in search of a crime for which there is otherwise no reasonable suspicion or probable cause to search, and the right of Plaintiffs to not self-incriminate to the government,” Rask argued in court papers.

Assistant U.S. Attorney Michael J. Jeter, who defended the regulation, countered at the hearing that the federal act “does not authorize the government to conduct any type of search. It does not authorize the government to rifle through one’s papers. It does not authorize surveillance over time of an individual.”

Simon found the new law did not exceed Congress’ constitutional authority, and noted that none of the plaintiffs who filed the case are tied to the cannabis industry or are undocumented business owners.

Congress found that the new reporting requirements would discourage the use of shell corporations “to disguise and move illicit funds” and would help national security, intelligence and law enforcement agencies curtail money laundering, the judge’s opinion said.

“The Court does not find that Congress’ conclusion was without a rational basis,” Simon wrote.

The judge said he must give deference to Congress, particularly “when the political branches have ‘adequately substantiated their determination’ that regulating conduct is necessary to meet identified national security needs.”

The judge dispelled the plaintiff’s privacy concerns, noting that when the FinCEN receives such ownership information, it can only disclose it to law enforcement or others in specified circumstances that sometimes require court authorization.

Simon said the business owners provided “no evidence” that someone would hesitate to become an owner of a company because the fact of their ownership would become known to the federal government, whether that’s a cannabis company owner or an undocumented business owner in Oregon.

“Plaintiffs’ assertions are speculative and too attenuated to establish standing or show a likelihood of success on the merits,” Simon wrote. “The Fifth Amendment privilege is only properly invoked in the face of ‘a real and appreciable danger of self-incrimination.’”

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