Smart but unconstitutional? Trump appointee inverts Scalia maxim in striking corporate transparency law

"Corporate Transparency," Seattle
by Daniel Foster via Flickr CC BY-NC 2.0

A federal district court in Alabama ruled the Corporate Transparency Act, a key anti-corruption statute, unconstitutional upon the inverse of a maxim of the late Justice Antonin Scalia.

There's much commentary on the reading-people's internet about the significance of the March 1, 2024, decision, which is certain to be reviewed by the Eleventh Circuit Court of Appeals. The dry question of business regulation might not make the cut on the TikTok news cycle, meanwhile, but the issue is immensely important.

Effective in January 2024, the Corporate Transparency Act, part of the Anti-Money Laundering Act of 2020, which in turn is part of the National Defense Authorization Act for Fiscal Year 2021 ("NDAA"), requires most businesses to report their "beneficial owners" with the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury Department. The information is not then public, but can be shared with law enforcement, including tax authorities.

The change in law has been in the works for some 20 years, conceived initially in the years after 9-11 to combat the financing of terrorism. The ABA Business Law Section has a deeper dive for subscribers.

Critically, the transparency around beneficial corporate ownership brings the United States into compliance with transnational norms. We had become something of a money-laundering haven in the world because of the secrecy we allow around ownership of corporations, namely (pun intended) anonymous shell corporations.

People who are keen to exert dark-money influence in politics, to hide assets, or to launder money, of course, tend to have a lot of it. So the law did not come about quickly or easily. But Congress was determined enough in the end to enact the law by a super-majority, overriding President Trump's veto of the NDAA.

Constitutional objections to the law are abundant, based in the First, Fourth, and Fifth Amendments, besides the limits of congressional power under Article I, as amended. It was only the latter theory on which Judge Liles Burke ruled. He concluded that the Corporate Transparency Act strays beyond the necessary-and-proper latitude afforded Congress for any of its constitutional powers, including the Commerce Clause and the Sixteenth Amendment taxing power. It's a problem in vertical federalism; if there is to be transparency in corporate beneficial ownership, then, it must come from the states. Burke is a Trump appointee.

I'm skeptical of the winning argument. Congress's powers in business regulation are substantial, and corruption and tax evasion are almost invariably interstate endeavors. Thus, the significance of the decision: for if it is right, a great deal more of our federal regulatory and taxing machinery will be suspect.

To be fair, small businesses objected to the added burdens of FinCEN compliance amid their already hefty costs in tax compliance, and I am empathetic. We might ought do something about that. But I suspect the legislative obstacles have more to do with keeping commercial-tax preparers in business and keeping the law arcane to shield loopholes, than with flat aversion to transparency.

The other constitutional objections are not frivolous, even if they don't hold up in the end; the rights-based theories have more romantic appeal to the classical liberal. The Fifth Amendment claim is based on due process, not so strong by itself; the Fourth Amendment claim is creative: search or seizure without reasonable suspicion. The First Amendment claim gave me pause: Compelled transparency compromises anonymous speech.

It happens that just last month, I (pro se) created a nonprofit entity to operate an academic research project. To free my New York nonprofit of minimum tax obligations—even though it has and anticipates no money—I applied for a 501(c)(3) determination from the IRS—which costs, by the way, a $275 tip to Uncle Sam.

The IRS informed me that upon approval, I will have to report my nonprofit's beneficial owners to FinCEN. It's irritating; mostly, I'm put off just wondering whether there will be yet another fee.  But it did occur to me that my nonprofit will be engaged in academic expression, and it might have things to say that will upset people in power. So there is a hint of Orwellianism in having to register my state entity with the federal FinCEN and identify my "beneficial owners"—remember, not even with any money in the mix.

At the same time, this is the uneasy balance we always have struck with the nonprofit tax registrations of First Amendment-sensitive enterprises, such as churches and issue advocates. In essence, this is the Citizens United problem, which I've always thought is more layered than it gets credit for. We have not found a principled way to differentiate Nike-as-speaker from the ACLU-as-speaker without some office of government problematically intervening to make the call.

Anyway, what attracted me to this ruling from Alabama is none of the above; rather, it was page one of Judge Burke's opinion. Have a read:

The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.

If that doesn't suck you into a 53-page opinion on financial regulation, nothing will.

For the time being, as of March 4, 2024, FinCEN has suspended reporting obligations for plaintiffs in the action only, including members of the National Small Business Association.

The case is National Small Business United v. Yellen (N.D. Ala. Mar. 1, 2024). The plaintiff is a 501(c)(6) nonprofit, I'm guessing a business league, though it sounds like a not-too-exciting football league.

Covid-era eviction elicits ancient injunction plea

Clameur de Haro was invoked to block the burial of William the Conqueror in 1087.

Image from Amable Tastu, La Normandie Historique (1858).

We've all seen the strain of the pandemic on our socioeconomic fabric and the rule of law.

Last week came the alarming news that a federal district judge in Texas ruled unconstitutional the eviction moratorium issued by the Centers for Disease Control.  Judge Campbell Barker held in Terkel v. CDC that the moratorium exceeded the federal power that the CDC could exercise on behalf of Congress under the Article I Commerce Clause and Necessary and Proper Clause of the U.S. Constitution.

A friend and colleague on Jersey, a Crown dependency close to France, sent along this fascinating item from the Jersey Evening Post.  A Jersey resident who was served with eviction papers after being unable to pay the mortgage invoked "an ancient legal right" called "the Clameur de Haro."  The Post explained:

To enact the Clameur the aggrieved party must go down on one knee in the location of the offence and then, with hands in the air and in the presence at least two witnesses, must call out: "Haro! Haro! Haro! A l'aide, mon Prince, on me fait tort." This translates as: "Hear me! Hear me! Hear me! Come to my aid, my Prince, for someone does me wrong." The offending activity must cease. The individual then needs to put the grievance down in writing and lodge it with the Judicial Greffe within 24 hours.

Jersey
(image of ESA Copernicus Sentinel-2 CC BY-SA 3.0 IGO)

Jersey is a fascinating study in comparative law.  One might expect the island to be legally indistinguishable from the UK, but that is not the case at all.  Jersey has its own parliament and legal system.  Unlike the UK, Jersey is not a member of the Hague Convention on the enforcement of foreign civil and commercial judgments, so a foreign entity wishing to enforce there must seek to register the judgment through a domestic legal process.

Collas Crill, "an offshore law firm that never stands still," wrote an explainer in 2018 on the Clameur de Haro in neighboring Channel Island Guernsey, where the process seems to be the same.  The explainer added, "After the cry, both the Lord's prayer and a Grace must be recited by the complainant in French."

Quartz reported how a woman in Guernsey stopped construction on a road improvement project in 2018 by invoking the Clameur de Haro.  According to Quartz, "[t]he clameur was first recorded in Norman law in the 13th century. Its use is believed to have originated in the 10th century as an appeal to Rollo, Viking founder of the Norman dynasty, according to a 2008 article in the Jersey and Guernsey Law Review by lawyer and legal historian Andrew Bridgeford."

Collas Crill lawyers further explained, "Arguably the main reason for the continued use of the Clameur is the immediacy of its effect, although in modern times an additional perceived benefit is the publicity it can draw to your cause."

Poli sci papers embrace power plant implosion, populist revolution, and constitutional convention

Here are a few of my favorite gleanings from yesterday's day one of the 2019 annual meeting of the New England Political Science Association in Portland, Maine, April 26-27, kicking off with the Brayton Point tower implosion this morning, Saturday, April 27.

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The Brayton Point cooling towers are no more
(CC BY-SA 3.0 Wikimaster97commons).

Imploded towers invite study of environmental law, policy, and urban aesthetics

Professor Aaron Ley, on the faculty at URI Political Science and also a town council member in Bristol, R.I., is working at the point where environmental law and policy meet public aesthetics.

After presenting on Friday, April 25, Ley left NEPSA to get back to the Massachusetts South Coast and witness the implosion Saturday morning, April 26, of the cooling towers at Brayton Point.  The towers have become a defining feature of the skyline in the region, so their absence in the vicinity of Fall River, Mass., and eastern Rhode Island will be an adjustment for locals (me included).  Though oft invoked as a symbol of adverse environmental impact, Ley explained at NEPSA, the towers functioned actually to mitigate the impact of the coal-fired power plant they grace, because they cooled water before it was released back into the Taunton River, sparing fish and their eggs from destructive warm water.

Ley is working interdisciplinarily with colleagues Bryce DuBois, lecturer at the Rhode Island School of Design, and Katherine LaCasse, in psychology at Rhode Island College, to complete survey and conventional research into public perceptions of urban spaces relative to environmental law and policy.  At NEPSA, Ley detailed the fascinating history of policing pollution in American waterways, from riverkeepers back to bounties on the 19th-century Hudson.

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Are we living in Google and Facebook 'company towns'?
They have courts now

Professor Kevin McGravey at Merrimack College is collecting and analyzing social media cases to see whether the First Amendment public forum doctrine still has some vitality in deciding these disputes, such as the President's ability to mute or block Twitter users.  See Knight First Amendment Inst. v. Trump, 302 F. Supp. 3d 541 (S.D.N.Y. 2018) (holding President's blocking of users on Twitter violated First Amendment requirement of viewpoint neutrality; now on appeal to Second Circuit). Cf. Packingham v. North Carolina (U.S. 2017) (holding social media restriction on registered sex offender violated First Amendment.)

The Gulf Shipbuilding Corporation, pictured here after WWI, owned the
Chickasaw, Ala., company town at issue in Marsh v. Alabama after WWII.
From Destroyer History Foundation.

McGravey thinks that the old company town case of Marsh v. Alabama (U.S. 1945) is relevant.  He concedes that the Marsh analogy to a social media platform was rejected by the court in Prager University v. Google, LLC, No. 17-CV-06064-LHK, 2018 WL 1471939 (N.D. Cal. 2018) (now on appeal to Ninth Circuit), in which the court refused to intervene in YouTube classifications and restrictions of PragerU's conservative political videos.  (See Eric Goldman's skepticism of the Marsh theory.)  But McGravey disagrees on a number of grounds, including the exclusivity of certain social media platforms as access avenues to public officials.

A company-town analogy doesn't get all the way to where we should be, McGravey admits, but the public forum doctrine might ought be reformed and extended to achieve worthwhile policy goals such as viewpoint neutrality on Facebook.  Still sounds like a stretch?  Well, consider, Mark F. Walsh in the latest ABA Journal reports on Facebook's plans to create a quasi-judicial appellate body to hear free speech claims.  Google already is adjudicating—internally and not transparently—right-to-erasure claims at the bidding of European data protection authorities.  Is that the town hall bell of the company town I hear?

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Federalism panel spans Rehnquist Court, religious freedom,
and the 1825 Constitutional Convention that never was

A smattering of views from a panel on federalism and the administrative state: 

• Christopher McMillion, Oklahoma Baptist University, is looking at the deep underpinnings of the "Rehnquist revolution" in federalism.  It's not about conservative politics, nor about federal power per se, he explained.  Rather, it's about protecting individual liberties—and actually the same kind of force can be witnessed in 10th-Amendment state jealousy of local officials' prerogatives relative to federal immigration enforcement.  
• Beau Breslin, Skidmore College, is working on a book on the constitutional conventions the United States has never had.  Surely Article V of the U.S. Constitution contemplated conventions with some periodicity.  What if we had had one about every human lifespan?  An 1825 Constitution probably would have opened with a lengthy declaration of rights and would have created an explicit voting franchise for white landholders, Breslin theorizes.  Oh, and Madison would have been so peeved that he sat out the Second Convention.  What would have been the implications in U.S. history for the Constitution thusly revised?  What would the Constitution look like after a 2022 convention?  Breslin examines these questions in part with reference to the real evidence of evolving state constitutions.

• 

  Maine Gov. Baxter with Irish Setter Garry Owen
  (public domain)

  James Stoner, Louisiana State University, exposed the thinly veiled nuance of religious freedom questions in the United States, from Employment Division v. Smith (U.S. 1990) to present.  The courts have looked the other way from legislative prayer, for example, and for that matter from the intertwining of government and religious practice since the days of George Washington himself.  He concludes that the judiciary is ultimately not the best forum for resolution of debate over religion in American public life.
• Sean Beienburg, Arizona State University, is researching the curious political journey of 1921-1925 Maine Governor Percival Baxter (namesake of Maine's beautiful Baxter State Park).  Republican Baxter advocated against the Ku Klux Klan at a time the Klan was making inroads with Maine Republicans.  He also staked out the political territory that would become Republicans' 20th-century economic libertarianism.  I note that Baxter was also an animal rights advocate before there was such a thing, and Maine's beautiful Baxter State Park is named for him.

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Populist revolution and American electoral politics
are both about more than red versus blue

I moderated and discussed on an afternoon panel with three fantastic papers.

• Erik Cleven, Christopher Galdieri, and Ashley Motta of Saint Anselm College are studying "down-ballot roll-off," when voters stop voting as they move down the ballot from "US Senator" to "Town Dogcatcher," or, really, "Register of Probate."  They set out to see whether there is merit in criticisms that voting college students dilute local electoral power because college students aren't interested in local races.  That turns out not to be true—not entirely true, anyway.  Looking at New Hampshire data, they found that new voters in a jurisdiction are responsible for down-ballot roll-off, and college students might just be part of that.  Other correlations arise with low education and lack of partisan tags to indicate party affiliation.  I suspect that an underlying cause is low information, a problem that dovetails with my own interest in transparency and affirmative disclosures of information to correct democratic deficit in developing political systems.



The "heartland-coastland" divide is more complicated than it seems and not
merely an expression of partisan sympathies, R.I. political scientists June
Speakman and Matthew Ulricksen show in new research.

• Two papers were strikingly complementary.  Isaac Effner, Brown University, took the normative lens off of "populism" to recount how a populist labor movement effected the 1934 West Coast waterfront strike and contributed dramatically to the evolution of organized American labor and 20th-century norms for the protection of American (and for that matter global) workers.  Don't be too quick to judge populism in scoffing at frustrated voters who support Trump, is the lesson, because populism per se can be a force for the vital expression of human rights, notwithstanding a temporary flirtation with demagoguery along the way.  Effner notes that similar populist motivations animated support in the last election for both Donald J. Trump and Bernie Sanders.
• And there comes to bear the remarkable work of Matthew Ulricksen, Community College of Rhode Island, and June Speakman, Roger Williams University and a representative in the Rhode Island legislature and former member of my Town Council in Barrington, R.I.  Ulricksen and Speakman showed some stunning maps of voting patterns in Rhode Island in the last election—I'd like to share, but they're not copyright-clear for my reuse; see the New York Times results.  Suffice to say the electoral maps reveal a deep divide in what looks like what Speakman and Ulricksen call a "heartland-coastland" divide, the former, Rhode Island's interior, Trump red, and the latter, in the salt air, Clinton blue.  Problem is, a number of data sets about who these voters are—wealth, ethnic identity, even partisan affiliation—do not actually bear out the divide.  What does?  Spoiler alert: population density.  What's more, because there is correlation with population density and not partisan loyalty, the heartland proves as receptive to Bernie Sanders's message as to Donald Trump's.  Speakman and Ulricksen identify one factor that explains voter behavior across the board: being "mad as hell."  The research leaves off there, but implications and questions abound for what will make an effective political movement in the future to capture increasingly alienated voters—and what conditions might trigger a populist revolution analogous to the 1934 general strike, or something bigger.

The annual meeting of the New England Political Science Association wraps up today, when I'll be presenting some findings on access to information and social and economic development in eastern Europe.