Lawsuits across U.S. take on reporting law; Oregon hearing on tap

Published 7:00 am Thursday, September 5, 2024

An Oregon judge heard arguments this week on the constitutionality of the Corporate Transparency Act, a law Congress passed to fight high-level crime, but instead has sparked a coast-to-coast grassroots rebellion.

Plaintiffs ranging from cattlemen in the West to Iraqi refugees in the Midwest to Black business owners in the East are challenging the act in eight states.

Ohio lawyer Robert Gargasz filed an early lawsuit, claiming the act amounted to “illegal spying on Americans.” The law is also being fought by parties in Oregon, Alabama, Maine, Massachusetts, Michigan, Texas and Utah.

“God bless them,” Gargasz said last week. “In Ohio and all 50 states, people should stand up to say, ‘Hey, the Bill of Rights means something.’”

The act requires small businesses to submit photos of owners and “important decision-makers” to federal financial crime investigators. The data dragnet will initially create files on some 32 million enterprises that can be tapped into by federal and foreign law enforcement agencies.

Congress passed the act to uncover shell companies fronting for drug traffickers, sanction evaders, tax cheats, terrorists and other criminals. The act applies to a wide range of corporations that register with states.

The reporting requirements are complicated enough that the National Cattlemen’s Beef Association recommends cattle producers consult with their tax attorneys to avoid $500 a day fines.

In the only significant decision so far, U.S. District Judge Liles Burke in Alabama ruled the act exceeded the constitutional authority of Congress to regulate commerce or foreign affairs.

The ruling did not address numerous other constitutional challenges to the act and only applied to members of the National Small Business Association, which filed the suit.

R-CALF has joined the lawsuit in Utah hoping to get the same relief for its cattle producer members, CEO Bill Bullard said.

“It’s vague as to what you’re precisely suppose to report, but if you don’t report properly you’re subject to significant penalties,” he said.

The Treasury Department appealed Burke’s ruling. The 11th U.S. Circuit Court of Appeals will hear arguments Sept. 27. The American Farm Bureau filed a friend-of-the court brief arguing Burke’s ruling should be upheld.

Oregon plaintiffs, led by former hazelnut processor Mike Firestone, were seeking a preliminary injunction from U.S. District Judge Michael Simon in Portland.

The Oregon plaintiffs allege the act violates six constitutional amendments that limit federal government power. Lawsuits in other states make similar claims, though with regional differences in emphasis.

The Alabama case stressed state sovereignty. Massachusetts plaintiffs warn about minorities being targeted. Michigan plaintiffs include Chaldeans, who speak Aramaic and fled Iraq and are starting small businesses.

“They all arrive at the same conclusion: What the government is asking us to do is unprecedented,” said Julie Parrish, an attorney for the Oregon plaintiffs.

The Oregon lawsuit stresses the act’s impact on small businesses. Only businesses with fewer than 20 employees or less than $5 million in revenue must report. “You’re being asked to cede your constitutional rights to own a small business and pursue the American dream,” Parrish said.

Besides R-CALF, the Utah plaintiffs include The People Restored, self-described lovers of the freedoms that founded the U.S.

Their lawsuit alleges that the definition of important decision-makers is so vague that the law will apply to business owners’ spouses who offer advice. Privacy rights should bar intruding into bedrooms, the suit argues.

A Treasury Department spokesman declined to comment on the lawsuit, but pointed to the department’s Financial Crimes Network website describing who has “substantial control” over a business and must report.

Besides the obvious, owners and officers, there is a “catch-all” category, according to the website. “Control exercised in new and unique ways can still be substantial,” the website reads.

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