This ruling effectively halts the requirement for reporting companies, including farmers and ranchers, to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
Source: DarrowEverett LLP
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking enforcement of the Corporate Transparency Act (CTA) and its reporting rule. This ruling effectively halts the requirement for reporting companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) in spite of the looming January 1, 2025 compliance deadline for reporting companies formed prior to 2024.
The Court’s Ruling on the Corporate Transparency Act
The court’s decision was based on its assessment that the CTA and the Reporting Rule likely violate constitutional protections and are likely “outside of Congress’s power”. The ruling, however, is not a final determination of the CTA’s constitutionality; instead, it temporarily halts enforcement while the case proceeds. As the Court’s order states:
Enforcement of the Reporting Rule, 31C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.
The injunction applies nationwide, meaning that all companies subject to the CTA’s reporting requirements are now exempt from filing beneficial ownership reports until further notice.
Implications for Businesses
The CTA, enacted in 2021, mandates that most U.S. companies report personal identifying information about their beneficial owners to FinCEN as part of efforts to combat money laundering, sanctions busting, and other illicit financing. The court’s ruling temporarily suspends these obligations, giving companies a temporary reprieve from the impending compliance deadline.
However, businesses should remain cautious. While the injunction is in effect, legal proceedings may reverse or uphold the court’s decision, potentially reinstating compliance requirements.
What’s Next for the Corporate Transparency Act?
An appeal to the Fifth Circuit Court of Appeals should be anticipated. In that case, further appeal to the U.S. Supreme Court is not out of the question, and in any case both Congress and FinCEN may take additional action before the end of the year.
Conclusion
The district court’s injunction against the CTA represents a significant legal development with broad implications for businesses nationwide. While the ruling temporarily halts compliance obligations, the final outcome of this case remains uncertain. Businesses should stay informed and proactive as the legal battle over the CTA unfolds. Given that (i) the CTA and its Reporting Rule have received a great deal of interest from the business community and judiciary, (ii) a new Congress and administration will take office in the coming year, and (iii) the civil and criminal penalties for noncompliance can be severe, reporting companies and their beneficial owners should, at a moment’s notice, still be prepared to comply with the Reporting Rule — before the January 1, 2025 deadline — in case further judicial or legislative developments revive the requirement to comply. Furthermore, in case the injunction runs past January 1, 2025, reporting companies should be prepared to comply at a moment’s notice in case the injunction is overturned thereafter.
