TYLER – A pair of plaintiffs, backed by the Texas Public Policy Foundation have filed suit against the U.S. Department of the Treasury, the Financial Crimes Enforcement Network and their respective leaders, arguing that the recently-adopted Corporate Transparency Act (CTA) oversteps federal authority by requiring that anyone who forms a state corporate entity must disclose private information to federal law enforcement.
Samantha Smith of Austin and Robert Means of Tyler filed suit in the U.S. District Court for the Eastern District of Texas on Sept. 12 versus the United States Department of the Treasury, its Secretary Janet Yellen, the Financial Crimes Enforcement Network and its Director Andrea Gacki, all of Washington, D.C.
“This lawsuit challenges the ability of the federal government to regulate the traditional relationship between private property owners and the state. Like countless other Americans, plaintiffs seek to make productive use of their properties. To protect themselves and their families while doing so, plaintiffs choose to hold those properties through Limited Liability Companies (LLCs) under the laws of the state of Texas. For all of American history, this sort of arrangement was a matter of solely between the state and its private citizens. Indeed, in the debates surrounding the ratification of the Constitution, corporate formation was listed as one of many powers that was not delegated to the federal government and reserved exclusively to the states,” the suit states.
“Nevertheless, in 2021, Congress passed the CTA, which requires individuals forming corporate entities under state law to report sensitive information to the Financial Crimes Enforcement Network. FinCEN promulgated rules to implement the Act in 2022. Under these provisions, every American who forms a company that is a ‘reporting company’(which applies to approximately 32.6 million companies) must disclose sensitive, personal information to the federal government – regardless of whether the company is engaged in interstate commercial activity or any commercial activity at all.”
This information is then put into a federal database that can be accessed by federal, state, local, tribal and international enforcement agencies.
“Failure to disclose this traditionally private information is a crime, punishable by civil penalties up to $500 per day, and criminal penalties up to a $10,000 fine, two years’ imprisonment, or both. But the federal government has no authority to regulate this sort of intrastate non-economic activity,” the suit states.
“It certainly does not have the lawful authority to force private individuals to report private information to a federal law enforcement database solely because they choose to maintain their property through state-created corporate form. Plaintiffs therefore seek relief from this Court to prevent this impending irreparable injury to their constitutional rights.”
For counts of violating Article I, Section of the U.S. Constitution and violating the Administrative Procedures Act, the plaintiffs are seeking the following relief:
• A stay of the effective date of the CTA implementing rule for the duration of this litigation under the Administrative Procedure Act, 5 U.S.C. Section 705;
• A declaration that the CTA and its implementing rule are unconstitutional on their face because they exceed the powers the U.S. Constitution grants to any branch of the federal government;
• A declaration to hold unlawful and set aside the CTA implementing rule as invalid under the Administrative Procedure Act, 5 U.S.C. Section 706, because it is contrary to constitutional right, power, privilege or immunity;
• A preliminary injunction against the defendants, as well as all agents, administrators, employees or other persons acting on behalf of the defendants, from enforcing the CTA;
• A permanent injunction against the defendants, as well as all agents, administrators, employees or other persons acting on behalf of the defendants, from enforcing the CTA;
• Costs and expenses incurred in bringing this action, including, but not limited to, reasonable attorney fees pursuant to 28 U.S.C. Section 2412; and
• Such other and further relief as the Court deems equitable, just and proper.
The plaintiffs are represented by Chance Dean Weldon of the Texas Public Policy Foundation, in Austin.
The defendants have not yet obtained legal counsel.
U.S. District Court for the Eastern District of Texas case 6:24-cv-00336
From the Southeast Texas Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com