On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking the enforcement of the Corporate Transparency Act (“CTA”) and its reporting rule (“Reporting Rule”). This ruling effectively halts the requirement for reporting companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) despite the impending January 1, 2025 deadline for reporting companies formed prior to 2024 to comply with the CTA.

The Court’s Ruling

The court’s decision was based on its assessment that the CTA and the Reporting Rule likely violate constitutional protections and likely exceeded its legislative powers. However, the court’s decision is not a final determination of the CTA’s constitutionality, as it only temporarily halts enforcement while the case proceeds.  Other courts have found the law to be constitutional, therefore it is likely that this law will wind up at the Supreme Court.

Implications for Businesses

The CTA, enacted in 2021, mandated that most U.S. companies report personal identifying information regarding their beneficial owners to FinCEN as part of an attempt to combat money laundering, sanctions damaging, and other illicit financing activities. The court’s ruling temporarily suspends these obligations, giving companies a temporary reprieve from the impending compliance deadline.

  • If a business has already complied, keep the BOIR report with your business records and don’t think about it again until there is a change to the entity’s ownership or address.
  • However, if a business has not already complied, it has two options:
    • Voluntarily comply.  This route allows the business to check it off the list and not worry about the law until there is a change to the entity’s ownership or address.
    • Not comply, but remain alert. While the injunction is in effect, legal proceedings may reverse or uphold the court’s decision, potentially reinstating compliance requirements at any time. An appeal to the Fifth Circuit Court of Appeals is anticipated and further appeal to the United States Supreme Court is not improbable. Additional action could be taken by governing agencies prior to the end of the year.

What Do We Do Now?

While the ruling temporarily halts compliance obligations, the final determination of this case remains uncertain. Businesses should stay proactive as the legal battle over the CTA develops. Reporting companies that have not complied already should still be prepared to comply with the Reporting Rule, prior to the January 1, 2025 deadline, in the event additional judicial or legislative developments revive the requirement to comply. Furthermore, in case the injunction proceeds beyond January 1, 2025, reporting companies should be ready to comply with the Reporting Rule in the event the injunction is subsequently overturned.

We recommend that business owners obtain a FinCEN Id and continue to dissolve unused entities, update their current corporate records and make any changes to their corporate structure before the injunction is lifted.  If the law is found unconstitutional, at least your corporate structure will be updated.

For more information regarding to the CTA and relevant updates, please see CTA Background and Compliance Tips.