On December 3, 2024, the US District Court for the Eastern District of Texas ordered a preliminary injuction against enforcement of the January 1, 2025, deadline for the 33 million small, incorporated “Reporting Entities” to file legal names and home addresses of persons with beneficial interests in those small entities. Dozens of motions have been filed around the US, including the one that prevailed in the Dec. 3 ruling, filed by six plaintiffs headlined by Texas Top Cop Shop, Inc, and one filed by four individuals and the American Association of Physicians and Surgeons, headlined by Steven F. Hotze, M.D.
Does the Federal government, through its Financial Crimes Enforcement Network (FinCEN), have the right to demand this sensitive data from millions of people, on threat of jail time and fines up to $591 per day? Keep in mind that the reporting requirement only falls on smaller corporate entities, not on entities with more than 20 full-time employees and having more than $5 million in gross receipts.
Your editors give a resounding, “NO!” because the requirements of this law and the bureaucratic rules for enforcing it would do egregious harm to peaceful, honest people. They would violate the privacy of millions of everyday people, and threaten the majority of small business owners in the US with catastrophic penalties for even one day of non-compliance. The two motions mentioned above both argue that the reporting requirement violates 4 of the 10 Amendments in the US Bill of Rights. While the US Bill of Rights is not a declaration of universal rights of humans everywhere, it is grounded in the natural, universal rights argued in the July 4, 1776, Declaration of Independence, and has been a bulwark for the protection of natural rights for citizens of the United States.
Note that RightsBlog does not give legal, accounting, or any sort of professional advice. We merely comment on the moral and ethical rectitude of actors and their actions, both real and hypothetical.
Your RightsBlog Editors say: No, federal agencies have no natural right to require this kind of reporting, and individuals have a right to be free of requirements like this, but the details of this situation complicate a clean verdict on questions of universal or natural rights. The law and rules in question have to do with corporate entities, which are creations of governments. In this case, they are creations of the several states of the United States of America. Even if this law, the Corporate Transparency Act, amounts to Federal overreach into state authority (which we believe it is), the states are free to demand the same information, or even more, in exchange for the advantages offered to individuals by the “corporate veil”.
Corporations, including limited liability companies and limited liability partnerships are themselves unnatural. They are fictitious “persons”. The “corporate veil” which they provide, shields their beneficial owners from liability for harms or omissions attributed to the corporation. And, shielding those acting on behalf of the corporation is an injustice to any persons who are harmed. When someone is harmed or let down by something agents of a corporation had an obligation to do, the justice and compensation the harmed individual can get from a corporation in some cases is limited, but natural law demands that those who have done harm compensate those whom they have harmed.
A corporation’s purpose is to be treated by its government as an artificial person, rather than as a company of natural persons with individual and/or several liability. One of the benefits to members and employees of corporations is that compensation for harms is prevented from being exacted from the individuals who did the actual harm. Usually this harm is just failing to pay vendors or lenders money owed, but sometimes it is failing to pay out on a judgment, or make other restitution, for personal harm done to victims.
Further, various laws give corporations advantages over real people, such as the ability of corporations to deduct employee health benefits from their taxable income. These instances of preferential treatment for people involved with corporations are also are violations of natural law, where the victims are everybody who is unable to enjoy the same benefits or privileges.
And finally, violations of natural law have unintended consequences beyond the offenses perpetrated directly on obvious victims. The entire market for medical services in the United States has been grossly distorted by the tax advantage corporations enjoy for money spent on employee health coverage. This one corporate benefit, not shared with natural persons, over the course of 80 years, has rendered medical care overly expensive for everybody and prone to opaquely- and arbitrarily-priced surprise bills for anyone who has had a hospital stay or an outpatient procedure. The market distortions that this privilege for corporations has caused in medicine has also lead to a system in which patient satisfaction is low and in which physicians burn-out and retire early at an alarming rate.
So, do we find fault with the Corporate Transparency Act and FinCEN’s enforcement rules on the basis of natural or universal law? Yes. But, the very nature of corporations is a problem from the universal rights perspective, too. Victims of wrongdoing deserve compensation from wrongdoers to the extent of a wrongdoer’s ability to make restitution, and perpetrators of actual crimes should be located and prosecuted, but the approach taken by Congress in passing this law, given the ubiquitous use of corporate entities by average people, to make modest livings, does far more injustice than justice.
