The National Small Business Association argues that the new reporting rule violates the U.S. Constitution, saying it is unduly burdensome on small firms, violates privacy and free speech protections and infringes on states’ powers to govern businesses.

The legal challenge points to the friction between maintaining privacy rights and the government’s effort to uncover sources of criminal activity, especially as the U.S. attempts to sanction Russian oligarchs and wealthy friends of Russian President Vladimir Putin since the start of his invasion of Ukraine.

The wealthy Russians are accused of hiding stolen money and assets in the U.S. and around the world.

“We already have very strong rules in place where financial institutions actually see the transfer of money through the economy, and do follow up on the data collected,” Todd McCracken, president of the small business group, said at a news conference. He said small business owners are “hugely concerned” about their private information being shared with the government.

The group filed a lawsuit in Alabama federal court against the Treasury Department, Treasury Secretary Janet Yellen and acting director of the Financial Crimes Enforcement Network Himamauli Das.

The rule finalized in September requires most American businesses with fewer than 20 employees — roughly 32.6 million companies — to register with the government as of Jan. 1, 2024. They must provide the government with details on their owners and others who benefit from them under a regulation that’s intended to peel back the layers of ownership that can hide unlawfully obtained assets.

Treasury officials said the regulatory burden will be small, costing about $85 per business, but will offer massive benefits to law enforcement, which will be one of few parties with access to the database. Small businesses are targeted because shell companies, often used to hide illegally obtained assets, tend to have few employees.

Ian Gary, executive director of the FACT Coalition, a nonprofit that promotes corporate transparency, said in an email that the new rule “will protect our financial system and small businesses from the criminal abuse of anonymous shell companies.” A representative from Treasury declined to comment on the lawsuit.

Kenyen Brown, an attorney representing the small business association, said the law, while well-intentioned, is a “gross government overreach.”

“The right avenues for the government to gather money laundering and possible anti-terrorism financing activity is through transaction monitoring and financial institutions performing their due diligence,” he said, adding that the new registration rule “is not the way.”