In a blow to the government’s efforts to combat money laundering, a federal court ruled that the Treasury Department cannot require some small businesses to provide personal details about their owners.

Under a section of a 2020 law that took effect Jan. 1, small businesses must share details about their purported beneficial owners, people who have financial stakes in a company or have significant power over its business decisions. The law, the Corporate Transparency Act, was passed with bipartisan support in Congress and was intended to help the Treasury Department’s financial crimes division identify money launderers hiding behind shell corporations.

But in a ruling issued Friday night, Judge Liles C. Burke of the U.S. District Court in Huntsville, Alabama, sided with critics of the law. They argue that asking business owners to submit personal data (names, addresses and copies of their identification documents) was a case of congressional overreach, however well-intentioned.

“Congress sometimes enacts smart laws that violate the Constitution,” Justice Burke wrote in a 53-page document. “This case, which concerns the constitutionality of the Business Transparency Law, illustrates that principle.”

Judge Burke’s ruling prevented the department from enforcing property reporting requirements against the plaintiff in the Alabama case, the National Small Business Association, a nonprofit trade group that represents more than 65,000 member businesses.

Lawyers who have followed the Alabama case said over the weekend that they expected the government to quickly request that the injunction be stayed, either by Judge Burke or the 11th Circuit Court of Appeals in Atlanta, or both. The Justice Department will almost certainly appeal the Alabama case to the circuit court, lawyers said.

Treasury Department spokesman Morgan Finkelstein said his agency was “complying with the court order.” He referred further questions to the Justice Department, which declined to comment.

While lawyers and transparency experts pored over Judge Burke’s opinion, the immediate impact of the ruling on the universe of small businesses in the United States, which the government estimates at 33 million, was not entirely clear.

Companies were given one year to comply with 2023 reporting requirements, so the data doesn’t even have to be reported until the end of 2024. And Judge Burke’s ruling, read strictly, doesn’t apply. applies to small businesses that are not members. from the trade organization that filed the Alabama lawsuit, meaning most businesses affected by the mandate have yet to comply.

“This has only made things more complicated for many of my clients,” said Angela I. Gamalski, who advises corporations large and small on regulatory and compliance matters at the law firm Honigman LLP in Ann Arbor, Michigan. She planned to wait until the summer to delve into the reporting requirements and what they meant for her clients, given that the filing deadline isn’t until December and law enforcement seemed to be changing.

Advocates for greater transparency condemned the ruling.

“This is an aberrant decision issued by a single district judge in Alabama, based on an extraordinarily narrow view of Congress’s constitutional powers that is not supported by precedent,” said Sen. Sheldon Whitehouse, a Rhode Island Democrat and one of the supporters of the law. “I would urge the government to appeal quickly to correct the erroneous decision and ensure that the law’s transparency requirements can be fully and uniformly implemented.”