Violation of Privacy in Discriminatory Business Case Law

The Corporate Transparency Act (CTA) has a long history. In June of 2006, the Financial Action Task Force criticized the US for failing to comply with FATF standards on the need to collect ownership information. [1] The purpose of the CTA is to facilitate law enforcement activities, including efforts to combat “illicit activity”, such as “money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption”. [2]  To promote corporate social responsibility and accountability, the CTA requires beneficial owners to submit private information such as their full legal name, date of birth, current residential and business street address, and identification number for an acceptable identification document for each owner. Disclosing this information will allow beneficial owners to own or control more than 25% ownership of an entity. [3] 

The CTA’s goal, which was to ensure that there was no “illicit activity” going on in small businesses, disproportionately affected minority businesses, because the government only required businesses with net worths under $5 million dollars to report this sensitive information. The act was counterproductive because its original aim of stopping crime led to their own crimes of violating privacy. The CTA aimed to create a database with a log of all the credentials of small businesses in the United States. This database intended to “crackdown on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals.” The CTA took over and imposed intense penalties for non-compliance onto small owners. [4]  

The call for discrimination pertains to the fact that a majority of black or minority-owned businesses fall short of the threshold set by the CTA. While Black-owned businesses' gross revenue soared by 43% from 2017-2021, from an estimated $127.9 billion in 2017 to $183.3 billion in 2021, the majority of these businesses made up only about 3% of all U.S. businesses that were classifiable by the race and ethnicity of their owners in 2021. [5] It is not coincidental that the information of “small business owners” is filtered through the Financial Crimes Enforcement Network, which is authorized to share information with foreign governments, law enforcement agencies, and financial institutions. Despite the CTA’s initiative to stop money laundering and criminal efforts, it should not come at the cost of an individual's right to privacy. 

This requirement to disclose personal information forces start-up businesses to divert their time, money, and resources to comply with the guidelines of the CTA.  [6] Minority groups already face challenges in attaining capital and loans and are notoriously given fewer opportunities in America to allow them to own a business. This breach of information could lead to higher scrutiny and targeting from financial institutions, being that data leaks might notify lenders that an individual is prone to identity theft or fraudulent activity.  This skepticism is ironic, because the CTA’s goal is to stop this illicit activity but by spreading individual’s information it makes business owners seem guilty.  Thus, the 25% ownership rule set by the CTA will leave black investors who don’t want their private information in a federal database less likely to invest. The CTA exacerbates these problems by forcing small businesses to spend extra money on legal advice regarding these requests. Additionally, the threats of severe penalties of serving two years in jail and paying fines up to $10,000 can take up the allocation of time and resources needed by small businesses.

Due to this discrimination, the Black Economic Council of Massachusetts (BECMA) filed a lawsuit on March 1, 2024, challenging the constitutionality, implementation, and enforcement of the CTA. In the lawsuit, the plaintiffs found six counts against the defendant in violation to the First, Fourth, Fifth, Ninth, and Tenth Amendments. [7] The lawsuit called on two other cases: the National Fed’n of Indep. Bus. v. Sebelius and the Americans for Prosperity Foundation v. Bonta. These cases showed that government overreach into businesses without compelling interest is not an accepted practice, regardless of race, and argued that the government must show a “compelling interest” to abridge the right of privacy for organizations.[8]  Both cases demonstrate that the CTA is not within its bounds to require information from these small businesses, because it asks for private information and overeaches in commercial affairs.  These violations are in tandem with the fact that the government is targeting racial minorities. 

However, the racial targeting of the CTA is not a new thing.  This history goes back to NAACP v. Button, which involved one of the first infringement cases on black businesses. The case regarded the state of Virginia which prohibited the NAACP from soliciting legal representation for individuals who might need it. The Supreme Court ruled in favor of the NAACP, holding that Virginia violated the First Amendment right of the NAACP. [9] While this case differs from the CTA’s violation, the overarching infringement on black and minority rights and success still holds today. There needs to be equitable access to resources because America is supposed to be an equal capitalist nation, commonly known as the “land of opportunity”. Along with this idea, there is of course the constitution which inhibits violations of privacy and the Civil Rights Act which prohibits discrimination based on race. So, the CTA is in direct conflict with American ideals and American law itself.  The only way to achieve equity would require the abolishment or adjustment of the CTA. If the U.S. government intends to fight money laundering and fraud, it must be consistent in requiring all businesses to provide their personal information or none at all. 

In conclusion, the Corporate Transparency Act aims to enhance regulatory transparency to combat financial crimes, but its implementation poses significant risks for Black and minority-owned businesses. The lawsuit made by the Black Economic Council of Mass underscores the historical context of systemic inequities. As these businesses strive to grow in a challenging economic environment, the CTA could worsen existing disparities in access to capital and resources. To create a more equitable landscape for entrepreneurs, it is crucial to reassess legislation and advocate for reforms that will remove barriers rather than impose them.  

1. “The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information”
2.  “Lawyers for Civil Rights”
3. “The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information”
4. “US Civil Rights Groups Challenge New Business Law: ICLG”
5. “A Look at Black-Owned Businesses in the U.S.”
6.  “Lawyers for Civil Rights”
7.  “Lawyers for Civil Rights”
8. Ibid.
9. National Association for the Advancement of Colored People v. Button.

Works Cited

Downes, Robert. “The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information.” American Bar Association, April 2021. https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/. 

US Treasury. Lawyers for Civil Rights, March 2024. https://lawyersforcivilrights.org/our-impact/economic-justice/corporate-transparency-act-factsheet/. 

Harkavy, Rob. “US Civil Rights Groups Challenge New Business Law: ICLG.” International Comparative Legal Guides International Business Reports, May 30, 2024. https://iclg.com/news/20764-us-civil-rights-groups-challenge-new-business-law#:~:text=The%20law%2C%20which%20aims%20to,by%20people%20of%20colour%2C%20immigrants. 

Leppert, Rebecca. “A Look at Black-Owned Businesses in the U.S.” Pew Research Center, February 16, 2024. https://www.pewresearch.org/short-reads/2024/02/16/a-look-at-black-owned-businesses-in-the-us/#:~:text=Black%2Downed%20firms%27%20gross%20revenue,of%20their%20owners%20in%202021. 

"National Association for the Advancement of Colored People v. Button." Oyez. Accessed November 24, 2024. https://www.oyez.org/cases/1962/5.