Compliance Chaos: The Legal Obstacles to Fighting Money Laundering and Protecting Personal Privacy

By Leo Mesa Guerra '29

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Introduction 

Money laundering has long been a major concern for not just our government, but for the very underpinning of our financial system. In January 2021, Congress enacted the Corporate Transparency Act (CTA) as an effort to curtail money laundering by collecting information on beneficial owners of businesses operating in the United States. (1) Since its inception, the act has faced continuous legal challenges and claims of unconstitutionality. From obstacles at the circuit level to befuddling small business owners with conflicting compliance demands, the CTA has been a headache for all parties involved over the last four years. Despite a somewhat definitive statement from the Treasury Department ending the CTA’s enforcement for domestic companies earlier this year, lawsuits remain active across several circuits, and there lies potential for a Supreme Court ruling. 

The CTA’s Inception 

To duly analyze the legal rollercoaster this legislation has caused, it is important to acknowledge its original intent and codification. The Corporate Transparency Act was originally a key pillar of a larger piece of legislation called the Anti-Money Laundering Act of 2020. The act sought to modernize U.S. money laundering laws and strengthen the Financial Crimes Enforcement Network, or FinCEN. (2)

The most crucial element of the law is the beneficial owner reporting requirement, or the BOI Rule, which was specifically codified by FinCEN in September 2022. (3) At this point, they issued specific guidelines and requirements for reporting. A beneficial owner is defined as someone who “Exercises substantial control over the reporting company,” or “Owns or controls at least 25 percent of the ownership interests of the reporting company.” (4) Information such as residential addresses, government-issued ID documents, and Taxpayer Identification Numbers was all collected. (5) In 2024, even before enforcement began, complaints of government overreach had already begun. 

Legal Challenges 

Only three months after FinCEN began collecting financial data based on the CTA in January 2024, a serious legal challenge had emerged. In the Federal District Court (N.D. Ala), National Small Business United v. Yellen took place. In this case, a group of small business owners sued the U.S. government on the basis that entirely innocent beneficial owners were having their personal and privacy rights violated by extending reporting obligations to all businesses operating in the U.S. (6) The court’s decision ultimately stated that the CTA surpassed congressional limits, particularly regarding the commerce clause, deeming it unconstitutional. In the court’s opinion, they state that “The Court can not find, and the parties have not identified, any other State or federal law like the CTA.”(7) Despite the decision’s small scope, only applying to these plaintiffs, this lack of precedent was key to the decision. National Small Business United v. Yellen brought the CTA to the national spotlight, sparking numerous other lawsuits from similar plaintiffs. 

On December 3rd, 2024, Texas Top Cop Shop v. Garland was brought before the U.S. District Court in Eastern Texas. Similar to our previous case, a group of several business owners based in Texas challenged the constitutionality of the obligatory reporting requirements of the CTA. (7) What distinguishes this case from the former is the court’s more expansive ruling. Not only did the court rule in favor of the plaintiffs, reaffirming the unconstitutionality of the CTA, but it also issued a Nationwide Preliminary Injunction. (8) In layman’s terms, the court’s ruling halted the enforcement of the BOI rule across the country for all businesses and ceased all filings just in time before the January 1st deadline. 

The ruling reemphasized that the law would hurt businesses and cause “irreparable harm if forced to comply with the CTA’s Reporting Rule, as it would compel them to disclose private information and thereby violate their constitutional rights.” (9) This conclusion summarizes the core of this debate. Apart from the clear disproportionate financial impact of compliance on small businesses, it leaves a door open for potential cybersecurity breaches, which could leak millions of private citizens’ information to the public. This all further underscores the court’s identification of “irreparable harm” to these businesses, both financially and personally.

Current State and Solutions

Shortly following the Nationwide Preliminary Injunction, a number of emergency filings from the Department of Justice ensued across many circuits, which ultimately reached the U.S. Supreme Court, where on January 23rd, 2025, it granted the government’s application to resume enforcement of the BOI Rule. (10) However, as claims of unconstitutionality raged across the country, and pressure mounted on the Treasury Department, FinCEN officially amended its original position. In March 2025, FinCEN issued an interim final rule that completely exempts most U.S.-based companies from complying with the BOI rule.

Essentially, it extended filing dates for any remaining organizations and rejected enforcement for those who did not comply. (11) This is where the law stands today.

While this may indicate that the privacy rights concerns over the CTA are now solved, many lawsuits remain active across the country over the law. For the better part of a year, U.S. businesses reported immense amounts of both financial and personal data that may have been unconstitutional to begin with. Additionally, businesses may have been hurt by compliance costs in filing their BOI reports, which they never should have had to undertake in the first place. The remaining lawsuits thus create a messy, yet fluid legal environment as the CTA is still on the books. (12) 

It is clear that FinCEN is receptive to public concerns over the CTA, but the current exemption on U.S. businesses acts as a band-aid on a much deeper issue. If the government is committed to diminishing money laundering from a federal scope, new reforms have to be enacted. For one, it would be far more reasonable if only businesses that partake in interstate or international commerce were subject to the BOI reporting rule. Currently, 32.6 million businesses are subject to reporting, far exceeding the actual number that participate in criminal activity. (13)  A narrower focus also reduces the fallout of potential cyber-attacks and simplifies the workload for government workers. Regarding the excessive compliance costs, shortening the paperwork for reporting to a brief document under 5 pages with clear instructions makes it easily accessible to administrators, streamlining the process. Finally, concerning the constitutionality of the CTA, implementing mandatory yearly congressional oversight reviews of FinCEN’s data collection would prevent or manage potential overreach. 

Should the Treasury Department choose to enforce the BOI rule once again, personal rights concerns could reemerge to the forefront. This entire debacle ultimately becomes a case study. The seemingly impossible balance between government policy that seeks to prevent financial delinquency and the individual rights of small, largely innocent LLCs and corporations serves as a breeding ground for highly contentious litigation. 

Endnotes

1. Anti-Money Laundering Act of 2020, Pub. L. No. 116-283, § 6403 (2021), https://www.congress.gov/bill/116th-congress/house-bill/6395/text 

2. Ibid.

3. FinCEN, “Reports of Beneficial Ownership”, 31 C.F.R. § 1010.380(d) (2022), https://www.ecfr.gov/current/title-31/subtitle-B/chapter-X/part-1010/subpart-C/section-10 10.380. 

4. Ibid. 

5. Ibid. 

6. Burke, Liles C. National Small Business United v. Yellen, No. 5:22-cv-01448, Memorandum Opinion (N.D. Ala., March 1, 2024), https://law.justia.com/cases/federal/district-courts/alabama/alndce/5%3A2022cv01448/18 3445/51/. 

7. Ibid. 

8. Texas Top Cop Shop, Inc. v. Garland, No. 4:24-cv-00478, Memorandum Opinion and Order (E.D. Tex., Dec. 3, 2024), https://law.justia.com/cases/federal/district-courts/texas/txedce/4%3A2024cv00478/2304 66/30/. 

9. Ibid. 

10. Fifth Circuit Review – Reviewed: Too Much Transparency. 2025. Yale Journal on Regulation. January 14. https://www.yalejreg.com/nc/fifth-circuit-review-reviewed-too-much-transparency/.

11. Supreme Court of the United States. James R. McHenry, III, Acting Attorney General, et al., Applicants v. Texas Top Cop Shop, Incorporated, et al., No. 24A653, Order granting stay, January 23, 2025. https://www.supremecourt.gov/docket/docketfiles/html/public/24a653.html. 

12. Financial Crimes Enforcement Network. "FinCEN Removes Beneficial Ownership Reporting Requirements for U.S. Companies and U.S. Persons." FinCEN.gov, March 21,  2025. https://www.fincen.gov/news/news-releases/fincen-removes-beneficial-ownership-reporti ng-requirements-us-companies-and-us. 

13. Center for Individual Rights. 2024. “Federal Reporting Law Threatens Privacy of 32    Million Small Business Owners.” Accessed October 23, 2025. https://www.cir-usa.org/case/texas-top-cop-shop-et-al-v-merrick-garland-et-al/.