Cattle producer organization R-CALF USA has joined a lawsuit against the U.S. Treasury Department and the Office of the U.S. Attorney General challenging the constitutionality of the Corporate Transparency Act.

The law went into effect Jan. 1 and requires business entities to report sensitive information about their “beneficial owners” to the federal Financial Crimes and Enforcement Network at the U.S. Treasury.

That information includes names, addresses, birthdays and identification numbers, such as a driver’s license or passport.

Passed in 2021, CTA is intended to enhance measures to combat financial crimes, such as money laundering and terrorism financing.

Reporting companies

The law applies to registered corporations, limited liability companies or similar entities, including foreign companies doing business in the U.S.

It does not include businesses with a physical presence in the U.S. that handle more than $5 million annually in gross receipts and have more than 20 employees.

It also excludes other entities, such as public companies, insurance companies, banks, broker-dealers and money-transmitting businesses.

A “beneficial owner” is any individual who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise exercises substantial control over the entity or owns or controls not less than 25% of the ownership interests of the entity.

Cost burden

There is no way for many reporting companies to accurately sort through all the possibilities to determine who is a “beneficial owner” without the assistance of legal counsel, the lawsuit contends.

“Paying legal counsel to review a company’s contracts and agreements represents a high burden for many small businesses — and that is true of plaintiffs and their members,” the lawsuit states.

Failure to report or update information carries a civil penalty of up to $500 a day and criminal penalties of up to two years imprisonment and a fine of up to $10,000.

Among other things plaintiffs allege CTA:

• Violates the fourth amendment, which protects law-abiding citizens from searches and seizures that aren’t authorized by a court and accompanied by a warrant. By demanding businesses and any beneficial owner to hand over their documents and information without a warrant and probable cause.
• Violates the fifth amendment, which protects citizens of being deprived of life, liberty or property without due process. Forced conscription of citizens to carry out the government’s burden of law enforcement is a direct violation of liberty interests — the right to do or not do anything — and substantive due process.
• Violates the first amendment by compelling the disclosure of associations and the production of private information. Absent a basis for the government to accuse a company of money laundering, there is no substantial or compelling interest to compelled this speech.

The lawsuit was filed in U.S. District Court in Utah on July 29.