The reporting requirements of the Corporate Transparency Act of 2021 31 U.S.C. § 5336 do not violate the Fourth or Fifth Amendment under California Bankers Assn. v. Shutlz. Firestone v. Yellen, 2024 U.S. Dist. LEXIS 170085 (D. Or. Sep. 20, 2024):
Seven individuals challenge the constitutionality of the Corporate Transparency Act of 2021 (“CTA”), 31 U.S.C. § 5336, both facially and as applied. Plaintiffs contend that the CTA exceeds Congress’ authority under Article I of the United States Constitution, compels speech and interferes with associational rights in violation of the First Amendment, constitutes an unlawful search and seizure in violation of the Fourth Amendment, violates the Fifth Amendment’s privilege against coerced self-incrimination, is unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment, imposes excessive fines and cruel and unusual punishment in violation of the Eighth Amendment, infringes upon privacy rights protected by the Ninth Amendment, and interferes with the rights of States in violation of the Tenth Amendment. Plaintiffs allege only individual claims; they have not brought this lawsuit as a putative class action. See Compl. (ECF 1).
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- Plaintiffs’ Challenge Under the Fourth Amendment
Plaintiffs contend that the CTA violates their rights under the Fourth Amendment. The Supreme Court, however, has recognized that reporting requirements of the kind at issue are not prohibited by the Fourth Amendment. In California Bankers Ass’n v. Shultz, 416 U.S. 21, 94 S. Ct. 1494, 39 L. Ed. 2d 812 (1974), the Court upheld a statute requiring banks to report to the federal government transactions greater than a specified dollar amount. Id. at 67; see also 31 U.S.C. § 5313. For each covered transaction, a bank must disclose the “name,” “address,” and “social security or taxpayer identification number” of “the individual presenting [the] transaction.” See, e.g., 31 C.F.R. § 1010.312. Congress explained that this information would be “highly useful in criminal, tax, or regulatory investigations.” 31 U.S.C. § 5311(1). Because the relevant “information is sufficiently described and limited in nature, and sufficiently related to a tenable congressional determination as to improper use of transactions of that type,” the Court concluded that the reporting requirements were reasonable under the Fourth Amendment. Shultz, 416 U.S. at 67. That conclusion reflects the well-established principle that where the government does not seek to make “non-consensual entries into areas not open to the public,” and instead merely requires regulated entities to divulge certain records, the Fourth Amendment is more readily satisfied. See Donovan v. Lone Steer, Inc., 464 U.S. 408, 414, 104 S. Ct. 769, 78 L. Ed. 2d 567 (1984).
Federal law requires taxpayers to file tax returns and other tax information, 26 U.S.C. §§ 6012, 6031-6060; employers to collect and make available information about new employees’ eligibility to work, see 8 U.S.C. § 1324a; and political campaigns to report contributions and expenditures, see 52 U.S.C. § 30104. As the Supreme Court explained, “reporting requirements are by no means per se violations of the Fourth Amendment,” and “a contrary holding might well fly in the face of the settled … history of self-assessment of individual and corporate income taxes in the United States.” Shultz, 416 U.S. at 59-60.
The CTA falls within the category of reasonable reporting requirements that courts have long understood as constitutional. As with the statute in Shultz, the CTA directs the disclosure of information that Congress explicitly identified as “highly useful” to combatting serious crimes. See § 6402(8)(C), 134 Stat. at 4605; 31 U.S.C. § 5311(1). Further, as discussed, Congress found that corporate ownership reporting requirements were “needed” to combat “the financing of terrorism” and to “protect vital United States national security interests.” § 6402(5)(B), (D), 134 Stat. 4604. The CTA therefore serves government interests of the highest order.
At the same time, the CTA does not disturb any interest the Fourth Amendment protects. The statute does not involve “non-consensual entr[y] into areas not open to the public.” Donovan, 464 U.S. at 414. Instead, it requires only that a business report an applicant or owner’s name, date of birth, address, and “unique identifying number,” such as a driver’s license number. 31 U.S.C. § 5336(b)(2)(A). This information resembles what Shultz identified as “sufficiently described and limited in nature.” 416 U.S. at 67. Plaintiffs argue that as beneficial owners or persons with substantial control of corporate entities, their interests are greater than those of the banks in Schultz, but as the Supreme Court explained in Schutlz, “neither incorporated nor unincorporated associations can plead an unqualified right to conduct their affairs in secret.” Id. at 67-68 (quoting United States v. Morton Salt Co., 338 U.S. 632, 652, 70 S. Ct. 357, 94 L. Ed. 401, 46 F.T.C. 1436 (1950).
Further, any asserted privacy interests are sufficiently protected by the statutory safeguards provided in the CTA. When FinCEN receives ownership information, it can only disclose that information to law enforcement and other entities in specified circumstances that sometimes require court authorization. See 31 U.S.C. § 5336(c)(2). Also, entities that receive ownership information from FinCEN must restrict access, implement security measures, and comply with many similar protocols. See id. § 5336(c)(3). Any individual who violates those protocols is subject to criminal and civil penalties. See id. § 5336(c)(4).
Thus, the Court concludes that Plaintiffs have not shown a likelihood of success on the merits with respect to their claim that the CTA violates the Fourth Amendment.
