Court says Corporate Transparency Act violates the Fourth Amendment
A federal court in Michigan has ruled that the Corporate Transparency Act (CTA) violates the Fourth Amendment, blocking a government attempt to collect personal data from millions of small business owners. The decision in Small Business Association of Michigan v. Yellen restores a core constitutional principle: The government can’t seize your private records and information without a warrant.
The CTA, passed in 2021, required small businesses to report a great deal of private information to a federal database controlled by the Financial Crimes Enforcement Network (FinCEN). Lawmakers claimed the law would combat financial crimes like money laundering. Instead, it created a system where the government treated every business owner as a potential suspect, amassing a database to sift through at its pleasure for present and future crimes. This is particularly alarming in an era of over-criminalization where the average American may commit as many as three felonies a day without realizing it.
The court saw through this scheme: In a March 3 decision, it ruled that forcing individuals to hand over personal information for law enforcement’s future use violates the Fourth Amendment’s protections against unreasonable searches and seizures.
The Fourth Amendment guarantees Americans security in their “persons, houses, papers, and effects.” It was written to prevent abuses like the British general warrants enforced against colonial-era Americans, which let officials search homes and businesses without reason. The CTA resurrected that practice in a modern form, compelling people to submit their personal information, not because they’d done anything wrong but because they owned a business. That flips the presumption of innocence on its head.
This ruling follows a growing trend in courts resisting broad data collection programs. In Carpenter v. United States, the Supreme Court ruled that police must obtain a warrant to access historical cell phone location data. And recently another federal court in upstate New York ruled that the federal foreign surveillance program may have violated the Fourth Amendment when the FBI used it to investigate Americans without warrants supported by probable cause. Courts have also questioned whether automated surveillance, like license plate readers and facial recognition, violates constitutional rights, with one federal appeals court ruling that Baltimore’s integrated system of surveillance planes, street cameras, and facial-recognition software violated the Fourth Amendment.
The CTA’s structure resembled other government overreach in the name of security. Programs like warrantless wiretaps and bulk data collection by intelligence agencies followed the same logic: collect now, justify later. The court rejected that approach.
The CTA also required FinCEN to store collected data in a federal registry accessible to law enforcement agencies and, in some cases, foreign governments. The risk of abuse or data breaches was clear. Government databases leak all the time. The 2015 Office of Personnel Management hack exposed sensitive records of millions of federal employees. Once the government collects private information, it struggles to protect it.
FinCEN estimated that compliance would have cost businesses $22.7 billion in the first year alone. That price tag would burden small business owners while doing little to stop sophisticated criminals who already use offshore accounts and complex legal structures to hide assets. Instead of targeting illicit actors, the CTA cast a wide net, pulling in millions of legitimate businesses. As is so often the case, the burdens of the government’s dragnet surveillance scheme fell disproportionately on law-abiding Americans.
Fighting financial crime is a legitimate goal, but the government cannot achieve it by violating constitutional rights.
Instead of forcing every small business owner into a federal database, the government should focus on investigating actual criminal activity. The Constitution allows law enforcement to gather evidence when it has reason to believe a crime has occurred. And it prescribes a process for it: a specific warrant signed by an impartial judge supported by probable cause that the search or seizure will uncover evidence of crime. Since 1791, this tried-and-true method has safeguarded privacy and property while allowing for legitimate exercises of the government’s police power to investigate and prosecute crime.
The government will likely appeal this ruling, and the case may reach the Supreme Court. If it does, the Court will face some critical questions, such as: Can the government use financial regulations as a loophole to justify mass, warrantless data collection to investigate future crimes?
A ruling in favor of the CTA would set a dangerous precedent. If the government can require small business owners to submit private information without cause, what stops it from applying similar rules to personal bank accounts, internet activity, or even phone records? The logic behind the CTA could pave the way for broader surveillance.
The Small Business Association of Michigan v. Yellen decision upholds a fundamental right. The government cannot demand personal data from millions of Americans under the guise of regulation. The Constitution requires limits on government power, and the Fourth Amendment provides the framework for enforcing those limits.
If the government wants information, it must follow the law—just like everyone else.
