THE CORPORATE TRANSPARENCY ACT:
BACK FROM THE DEAD?
By
Prof. Anthony Michael Sabino
Vampires. Zombies. Pure myth. Nothing rises from the grave. Except possibly statutes thought dead and buried.
Approximately one year ago, we analyzed holdings declaring unconstitutional the Corporate Transparency Act (the “CTA”), a regulatory regime which compels newly formed corporations and LLCs to report their beneficial ownership to federal agencies. See, i.e., Sabino, “Dead Stop for The Corporate Transparency Act: Part 2,” 273 New York Law Journal p.4, cl.4 (February 20, 2025).
Very recently, the U.S. Court of Appeals for the Eleventh Circuit has brought the CTA back to life. In National Small Business United v. Dep’t of Treasury, ___ F.4th ___ (No. 24-10736) (11th Cir. December 16, 2025) (“NSBU II”), the panel concluded that the statutory scheme is a valid exercise of the Commerce Clause power, U.S. Const., Art. I, § 8, cl.3, for reason that the law regulates economic activity which substantially affects interstate commerce. Compare Sabino, “Hitting ‘Pause’ on the Corporate Transparency Act: Part II,” 272 New York Law Journal p.4, cl.4 (June 10, 2024) (analyzing NSBU I).
To fully comprehend NSBU II, we commence with the axiom that the Commerce Clause delimits federal oversight of business to: the channels of interstate commerce; the instrumentalities of same; or endeavors which substantially affect interstate commerce. It was uncontroverted in NSBU II that the first two categories were inapplicable; therefore, the paramount inquiry was “whether the CTA passes muster under …the ‘substantial effects’ test.”
Regulating “Economic Activity”
Bifurcating its analysis into two components, the Eleventh Circuit first asked “whether the CTA regulates economic activity.” See United States v. Lopez, 514 U.S. 549 (1995), and United States v. Morrison, 529 U.S. 598 (2000). Corporations, opined the panel, are never created for their own sake; rather, they are infused with life for some commercial purpose. See McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819). Capital is exchanged for ownership, in anticipation of dividends. Limited liability companies, albeit subject to a different taxing procedure, likewise remit profits to their members.
The conclusion that contemporary business structures “are a means to an economic end” and are “commercial by their very nature” led the circuit court to proclaim that “we can safely say that the CTA facially regulates economic activity.” Such findings, moreover, obviated any need for an “airtight” relationship between the mandatory reporting law and interstate commerce.
“It is enough,” proclaimed NSBU II, “that the regulated activity involves some sort of economic endeavor” (internal quotations and citation omitted). In sum, the tribunal declared that the statutory regime “is sufficiently connected to economic activity to meet the first part of the substantial effects test.”
Rebuffing the Opposition
Disposing seriatim of a trio of counterarguments, the panel first rebuffed the assertion that the CTA wrongly encroaches upon isolated, noncommercial acts of business formation. The regulatory scheme “addresses only what entities must do after they are registered to do business,” and “in no way” impacts relevant state law or how businesses incorporate (emphasis in the original).
Responding to the allegation that the CTA’s lack of a jurisdictional proviso rendered it unconstitutional, the Eleventh Circuit distinguished the case at bar from both Lopez and Morrison, opining that a “jurisdictional element” is not a prerequisite for an economic regulation rooted in a commercial transaction which substantially affects interstate commerce.
Third, an unassailable maxim of recent Commerce Clause landmarks is that federal regulation of economic inactivity is expressly prohibited. See National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012); see also Sabino, “Dead Stop for the Corporate Transparency Act: Part I,” 273 New York Law Journal p.4, cl.4 (February 13, 2025). In contradistinction, the law presently before the circuit judges “does not regulate based on an entity’s anticipated future conduct. Instead, the CTA anticipates the effects on commerce of active businesses not reporting ownership information” (emphasis in the original).
For all these reasons, the southernmost circuit decreed that “the CTA regulates economic activity on its face.” The first part of its analysis thereby completed, the panel next asked “did Congress rationally conclude that the regulated conduct has a substantial aggregate effect on interstate commerce?”
“Substantially Affects” Interstate Commerce
Likewise answering this question in favor the CTA’s constitutionality, the tribunal characterized the regulatory scheme as nothing more than “a routine federal law,” unremarkable in the conception of federal authority. Financial reporting requirements, noted the appellate bench, “are very common” within the corpus of federal law. See California Bankers Association v. Shultz, 416 U.S. 21 (1974). “The United States Code is replete with them.”
Interestingly, at this juncture the Eleventh Circuit made extensive reference to the CTA’s legislative history. According to NSBU II, the lawmakers constructed the statutory regime with “input from numerous national security and law enforcement experts,” assigning significant weight to testimony asserting that domestic reporting requirements did not meet international standards for preventing abuse of the corporate form. It would seem that the panel willingly adopted the contention that reconciling these differences was essential to averting money laundering and similar wrongdoing which miscreants conceal behind a façade of legitimate commercial activity.
Deeming itself obligated to defer to the judgments made by Congress in forging the CTA’s reporting requirements, and clearly impressed by the fact that there are an estimated 2 million business formations in the U.S. annually, the tribunal found that there is a “direct and straightforward” connection between anonymous business ownership and interstate commerce. Therefore, opined the appellate judges, “Congress could rationally conclude that the freedom of beneficial owners to operate anonymously through shell companies had a substantial aggregate impact on interstate commerce.”
Lastly, rejecting the argument that the CTA impermissibly impacts strictly local businesses, NSBU II categorized any such instances as inconsequential “edge cases.” Merely because “some purely intrastate entities” would now be obligated to report their beneficial ownership did not justify usurping the legislative finding that “cumulative activity would substantially affect commerce.”
Almost as an aside, the circuit judges deemed without merit any claims that the CTA violated certain of the Constitution’s personal liberty protections. Not only are such challenges difficult to sustain, said the panel, in the past they had proven unsuccessful in opposing, inter alia, the Bank Secrecy Act. See Schultz, infra.
In the case at bar, the appellate court decreed that the statutory regime’s “uniform reporting requirement” is not arbitrary, discretionary, nor burdensome. Moreover, the regulatory scheme does incorporate some affirmative measures to ensure privacy; consequently, it cannot be said that the CTA violates the Fourth Amendment.
At the end of the day, NSBU II validated the CTA as a constitutional exercise of the Commerce Clause power. The statute, directed as it is toward the beneficial ownership of corporations and LLCs, regulates “economic activity,” and it was reasonable for lawmakers to conclude that business formation substantially affects interstate commerce.
Critiquing NSBU II
With the utmost respect for the illustrious Eleventh Circuit, its holding is, at best, disconcerting. Admittedly, incorporation typically leads to some commercial activity. But what if that threshold is never crossed? And even if economic activity follows, then when and, highly significant in the present context, where does it take place?
Lopez and Morrison each resoundingly proclaimed that Congress is strictly delimited to regulating only actual commerce, and solely if and when it crosses state borders. Nevertheless, the CTA’s reporting requirements, now found constitutional by NSBU II, take effect prior to any confirmation that a newborn business is engaged in economic activity, let alone immersed in the stream of interstate commerce. Given such, is this statutory regime truly distinguishable from the enactments struck down by the aforementioned twin pillars of Commerce Clause jurisprudence?
Furthermore, the tribunal’s extensive reliance upon the CTA’s legislative history gives us pause. Surely, those debates were worthy of study; yet the lawmakers likely made congruent findings and reached similar conclusions when promulgating the statutes ultimately declared unconstitutional in Lopez and Morrison. Is not the entire point of those formidable landmarks that the courts must hold in check Congress’s exercise of the awesome Commerce Clause power?
Finally, we are deeply troubled by the Eleventh Circuit’s own declaration that the CTA anticipates substantial effects upon interstate commerce. We are compelled to respectfully ask if the Commerce Clause condones regulation of an activity, even an economic one, merely upon some expectation that it will significantly impact interstate commerce?
We honor the boundaries of the Commerce Clause best by upholding only those regulatory regimes actuated solely by unequivocal commercial activity, and ascertainable entry into the stream of interstate commerce; conversely, we discard as unconstitutional statutes lacking such constraints. We fear that, rather than being guided by such a precept, NSBU II incautiously concludes that the straightforward act of business formation pursuant to state law instantly comprises both economic activity and substantially affects interstate commerce.
Supreme Court Review Needed
Now standing in exquisite counterpoise are the Eleventh Circuit, on the one hand, and the courts finding the CTA violative of the Commerce Clause on the other. NSBU II greatly magnifies the internecine conflict. It is now up to the U.S. Supreme Court to rule whether the Corporate Transparency Act has risen from its grave or instead declare it dead and buried, once and for all.
Prof. Anthony Michael Sabino, partner, Sabino & Sabino, P.C., is also a Professor of Law, Tobin College of Business, St. John’s University. Anthony.Sabino@sabinolaw.com.