Bloomberg Law: Corporate Transparency Act Blocked by U.S. Appeals Court Again

The Corporate Transparency Act (CTA), aimed at curbing illicit financial activities by requiring companies to disclose beneficial ownership, has faced legal setbacks. A U.S. appeals court recently blocked its enforcement, delaying compliance deadlines indefinitely. ABPA members should monitor updates and be prepared for potential reporting requirements when a final decision is reached. – Ed Salamy

Source: Bloomberg Law

Businesses getting whiplash from changing injunction status
Appeals court sets March argument date

A Fifth Circuit panel reinstated a nationwide injunction blocking enforcement of the Corporate Transparency Act, three days after a different panel lifted it, causing turmoil in compliance offices.

The CTA, enacted as an anti-money laundering measure, requires that US entities that existed before 2024 disclose the identities of their beneficial owners—individuals who own or control the business—by Jan. 1, 2025. With the injunction back in place as of Thursday, however, the government can no longer require businesses to file their beneficial ownership information reports to Treasury’s Financial Crimes Enforcement Network.

Back-and-forth changes to CTA enforcement over the holidays have caused whiplash for businesses weighing whether to proceed with their disclosures voluntarily. In between the Fifth Circuit rulings, the Treasury agency announced it was pushing back the reporting deadline to Jan. 13—meaning that the deadline has changed three times this week.

“What this has created, with respect to the back and forth, is widespread confusion and uncertainty,” said Danielle Lemberg, a Seward & Kissel LLP partner working on corporate formations and transactions,

Before the injunction, approximately 32.6 million existing US businesses would have needed to file reports in total by 2025, according to FinCEN estimates.

FinCEN said Friday that businesses could still file voluntarily if they chose.

“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force,” a statement on the agency website said. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Constitutional Challenge

Texas Top Cop Shop Inc., a firearm retailer represented by the federalist advocacy nonprofit Center for Individual Rights, challenged the constitutionality of the law.

A district court ordered a nationwide halt to enforcement on Dec. 3, which was lifted on Dec. 23 by the panel of the US Court of Appeals for the Fifth Circuit that handles motions. That panel held the government was likely to succeed on the merits in defending the law.

Now a different panel of the same court, handling the merits of a government appeal, has reversed course again.

“In order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction” is vacated, the panel wrote in an order Thursday.

With the injunction back in place, companies are again faced with a choice of whether to voluntarily file, or wait and see.

“Our advice to clients throughout this sort of turmoil is, if they’ve completed their own analysis as to their beneficial ownership information, if they have all of their information at hand, they may wish to voluntarily file,” Lemberg said. “Or at the least, they gather all of that information and have it at hand, so that they’re ready to file if the injunction is lifted and the CTA requirements are forced.”

Nearly one-third of all 10 million beneficial ownership reports that FinCEN received before the Dec. 3 injunction were submitted in the preceding three weeks, and filing rates increased to nearly 1 million per week during that time, according to the government.

Officials sought to lift the Texas court’s nationwide injunction because it disrupted that progress, sparked widespread confusion, and caused irreparable harm to FinCEN’s future enforcement capabilities, the US said.

The Fifth Circuit scheduled arguments March 25 on the merits of the government’s appeal, according to the court’s docket.

On Friday, the court granted a motion to withdraw, as moot, a petition for an en banc rehearing from plaintiffs.

SL Law PLLC also represents the plaintiffs.

The case is Texas Top Cop Shop v. Garland, 5th Cir., No. 24-40792, order 12/26/24.