The Supreme Court on Thursday revived a federal law requiring companies to report information about their owners in an effort to combat money laundering, the drug trade and terrorism.
The court’s brief order gave no reasons, which is typical when the justices act on emergency applications. The ruling was provisional, reinstating the law while a challenge to it moves forward.
Critics say that the law, the Corporate Transparency Act of 2021, is needlessly burdensome, a threat to privacy and an unconstitutional federal intrusion on matters that have been historically regulated by states.
The challenge to the law was brought by a firearms dealer, a technology company, a dairy, the Libertarian Party of Mississippi and the National Federation of Independent Business, which was the lead plaintiff in the first major challenge to the Affordable Care Act. As in that case, the plaintiffs in the challenge to the transparency law argued that the Constitution’s commerce clause did not authorize Congress to regulate what they said was inaction rather than economic activity.
The challengers added that the law covers tens of millions of small entities, including homeowners’ associations and family trusts. Complying with the law will collectively cost tens of billions of dollars, they said.
Judge Amos L. Mazzant of the Federal District Court in Sherman, Texas, blocked the law nationwide, saying that Congress had overstepped its constitutional authority.
“Though seemingly benign,” the judge wrote, “this federal mandate marks a drastic twofold departure from history. First, it represents a federal attempt to monitor companies created under state law — a matter our federalist system has left almost exclusively to the several states. Second, the C.T.A. ends a feature of corporate formation as designed by various states — anonymity. For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government.”
A divided three-judge panel of the U.S. Court of Appeals for the Fifth Circuit temporarily lifted the injunction, observing that the “ownership and operation of a business” are economic activities and that “a reporting requirement for entities engaged in these economic activities falls within ‘more than a century of the Supreme Court’s commerce clause jurisprudence.’”
A different three-judge panel of the Fifth Circuit later reversed course, blocking the law while an appeal moved forward. Arguments before the Fifth Circuit are scheduled for late March.
The Biden administration asked the Supreme Court to intervene, arguing that the standard practice is to leave federal laws in place until the justices rule that they are unconstitutional.
West Virginia and 24 other states filed a brief supporting the challengers and asking the justices to block the law, which they said “takes an unprecedented swipe at the quintessentially state-controlled area of corporate law.”
“Meanwhile,” the brief said, “the costs from that unlawful move are staggering for the states and the people who live and work there.”
Two members of the court filed short opinions.
Justice Neil M. Gorsuch said he agreed with the court’s action but would have gone “a step further” and agreed to hear the case immediately “to resolve definitively the question whether a district court may issue universal injunctive relief.”
Justice Ketanji Brown Jackson dissented. “I see no need for this court to step in now for at least two reasons,” she wrote. The appeals court has put the case on a fast track while the government has moved slowly, she wrote, “setting an enforcement date of nearly four years after Congress enacted the law.”
“I would therefore deny the application,” she added, “and permit the appellate process to run its course.”
