A Corporate Transparency Act Update

PUBLISHED JANUARY 2025

The Corporate Transparency Act, enacted to shed light on the often-opaque world of corporate ownership and control, has become embroiled in a legal battle that has now reached the highest court in the land. This ongoing saga highlights the tension between government efforts to combat illicit financial activities and private-party concerns about privacy and potential overreach. 

The CTA represents a significant shift in beneficial ownership reporting requirements in the United States. Enacted with the goal of unmasking individuals hiding behind shell corporations for nefarious purposes, the CTA mandates that millions of U.S. businesses disclose information about their beneficial owners to the Financial Crimes Enforcement Network of the U.S. Department of Treasury, or FinCEN. This information is intended to help law enforcement track down those engaged in money laundering, terrorist financing, and other illicit activities. The law requires reporting companies to file beneficial ownership information reports with FinCEN. The initial filing deadline for many businesses was Jan. 1, 2025: that is, until the courts got involved.

The CTA’s implementation has been anything but smooth. Numerous federal lawsuits have been filed challenging the constitutionality of the act and its implementation; in some cases, the federal courts have ruled that the CTA is likely unconstitutional, while other federal courts, based on virtually the same facts and legal arguments, have ruled that the CTA is likely constitutional.

In one of these cases, Texas Top Cop Shop v. Garland, the U.S. District Court for the Eastern District of Texas, in December, issued a nationwide preliminary injunction against the government’s enforcement of the CTA. While the CTA itself remained in place, the injunction effectively halted its enforcement. The government swiftly appealed the decision to the Fifth Circuit Court of Appeals and requested a stay of the injunction pending appeal. 

On Dec. 23, a motions panel initially granted the government’s request for a stay, allowing the CTA’s enforcement to resume. FinCEN responded by extending the filing deadline for certain reporting companies to Jan. 13, 2025. However, this reprieve was short-lived. On Dec. 26, a merits panel of the same Fifth Circuit vacated the stay, reinstating the nationwide injunction. The case was then scheduled for briefing, and March 25 oral argument before the Fifth Circuit. 

The Supreme Court Enters the Fray

Undeterred, the government appealed the Fifth Circuit’s conflicting decisions to the U.S. Supreme Court. The appeal sought to suspend the preliminary injunction, arguing that it unduly restricts the government’s ability to combat financial crimes. The appeal also raised the question of whether the District Court had the authority to issue a nationwide injunction. On Jan. 3, Justice Alito requested a response from the plaintiffs, and the plaintiffs filed a response on Jan. 10, setting the stage for the next chapter in this high-stakes legal battle.

Implications for Businesses

The ongoing legal challenges surrounding the CTA have created significant uncertainty for businesses. While the injunction remains in effect, businesses are not required to comply with the CTA’s reporting requirements. However, FinCEN has stated that businesses may continue to file the ownership-information reports voluntarily. If the Supreme Court grants the government’s appeal and lifts the injunction, businesses will likely face a new deadline for compliance. It is crucial for businesses to stay informed about the latest developments in this case and be prepared to comply with the CTA’s requirements should the injunction be lifted.

The legal battle over the CTA is not merely a technical dispute about legal procedures. It represents a fundamental clash between the government’s interest in combating financial crime and concerns about privacy and the potential for government overreach. The Supreme Court’s decision in this case will have far-reaching implications for the future of corporate transparency and the fight against illicit financial activities. 

It may also have far-reaching implications for the imposition of universal injunctions by federal district courts in the years to come. The outcome will shape the balance between national security interests and individual rights, setting a precedent for similar regulatory efforts in the years to come.

The takeaway: All reporting companies are encouraged to either proceed with their initial ownership-information filings on a voluntary basis or to monitor additional developments from the courts as guidance continues to change—nearly daily.