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The Biden Administration has filed an 11th-hour appeal to the US Supreme Court in an attempt to clear the path for the enforcement of a controversial anti-money laundering (AML) law.

On December 31, Attorney-General Merrick Garland submitted an to the Supreme Court, calling on it to intervene in an ongoing legal battle over the Corporate Transparency Act (CTA).

The application demands that the Supreme Court stay a previous injunction on the CTA that was issued in December by Judge Amos Mazzant of the Eastern District of Texas.

Following an appeal from several local businesses and trade associations, Judge Mazzant ruled that the CTA is unconstitutional and that it exceeds the authority of Congress and the federal government.

As one of the associations that filed the appeal represented businesses across the US, Judge Mazzant ruled that a nationwide injunction on the CTA was appropriate.

The Biden Administration appealed Judge Mazzant’s decision immediately, but, for now, the injunction remains in place.

However, as argued in its application to the Supreme Court, the government believes that its appeal in the lower courts is “likely” to succeed.

As such, the applicants have asked the Supreme Court to reinstate the full nationwide enforcement of the CTA while the government’s appeal is adjudicated.

“The CTA’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,” the application notes.

“The requirements therefore fall comfortably within Congress’s authority under the Commerce Clause to regulate economic activities that substantially affect interstate commerce.”

What is the CTA?

In 2021, Congress enacted the CTA with bipartisan support, in an effort to prevent the use of US companies in financial crime.

Congress found that malign actors often conceal their ownership of corporations to facilitate  illicit activity, including money laundering, tax fraud, human and drug trafficking, and the financing of terrorism.

Lawmakers therefore determined that requiring companies to report information about their owners would enable the government to detect and prosecute financial crimes, and would discourage the use of shell companies to conduct illicit activity.

Under the CTA, all companies with up to 20 employees and $1m in revenue are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

Beneficial owners are defined as individuals who exercise substantial control over the company or who own or control 25 percent of its ownership interests.

These individuals are required to report their names, dates of birth, addresses and unique identifying numbers (e.g., driver’s licence or passport numbers) to FinCEN.

Failure to comply with the reporting requirements can result in fines of up to $10,000 per violation, felony charges and up to two years' in prison.

CTA compliance would have been extremely low

The CTA came into effect on January 1, 2024 and, under the original timetable, covered entities would have been required to comply with its reporting obligations by January 1, 2025.

However, even while the CTA was still in force, compliance with its reporting requirements was extremely low.

Prior to Judge Mazzant’s injunction, FinCEN disclosed that only 10 percent of covered entities had filed their beneficial ownership information as required.

Low awareness of the CTA, and even lower compliance rates, were among the reasons given when Republican lawmakers wrote to the Treasury in November to ask for an extension of the reporting deadline.

“Given this massive education gap, it is clear additional time is needed for regulators and other stakeholders to continue their outreach to affected small businesses,” the lawmakers wrote.

One year earlier, in October 2023, a survey by Wolters Kluwer  a widespread lack of awareness of the CTA among both businesses and legal professionals.

Of the 669 companies and 328 law firms and accountancies surveyed, about half were subject to the CTA’s beneficial ownership reporting requirements.

However, 74 percent of covered entities who answered the survey said they only found out about the CTA when they were asked to take part in the survey.

Continued calls for CTA to be scrapped

Among lawmakers who oppose the CTA on privacy and constitutionality grounds, the government’s continued support for the law has been met with renewed calls for it to be scrapped.

Last month, Senator Mike Lee (R-UT)  the CTA ought to be repealed, describing it as “unduly divisive”.

Posting on X, Lee shared a clip of Senator Tommy Tuberville (R-AL), who has also  for repealing the CTA.

“The CTA is an outright attack on the 32m small businesses in this country,” he said. “Failure to comply could put you in jail for up to two years — that’s quite a penalty.

“Small businesses play a huge role in supporting this country, and I can tell you that most business owners have no idea that this law exists.”

In September, Lee introduced the Saving Privacy Act, a bill that would repeal the CTA and would also repeal the suspicious activity reporting (SARs) requirements under the Bank Secrecy Act (BSA).

Lee’s bill was read twice and referred to the Committee on Homeland Security and Governmental Affairs.