In a major legal development, on December 3, 2024, Judge Amos L. Mazzant III of the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction blocking the enforcement of the Corporate Transparency Act (the “CTA”). This ruling halts the federal requirement that millions of U.S. businesses disclose their beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), a bureau within the United States Department of the Treasury (the “Treasury Department”), as part of broader anti-money laundering efforts.
The court’s decision has significant implications for businesses preparing to meet the January 1, 2025, deadline for filing beneficial ownership reports with FinCEN. Companies should monitor the situation closely, as the stay could be lifted, extended, or modified depending on the outcome of legal proceedings. In the meantime, it would be prudent to continue gathering the necessary information for filing ownership reports in case the injunction is lifted.
For further updates on the status of the injunction or the case generally, do not hesitate to contact our firm or visit https://home.treasury.gov/ or https://fincen.gov/boi.
The decision stems from the case Texas Top Cop Shop v. Garland et al. (Case No. 4:24-cv-00478), where plaintiffs, including small business owners, a firearms retailer, the Libertarian Party of Mississippi, and the National Federation of Independent Business (“NFIB”), challenged the CTA on constitutional grounds. The plaintiffs argued that the CTA, among other things, falls outside of Congress’s powers to regulate interstate commerce because it regulates incorporated entities regardless of whether they engage in commercial activity. While this is not a direct ruling on the merits of the case, Judge Mazzant agreed that the CTA is likely unconstitutional as an overreach which disrupts the federal balance of power, particularly because it assumes that every company is engaged in the channels and instrumentalities of interstate commerce.
As NFIB represents parties across the U.S., the injunction issued by Judge Mazzant explicitly enjoins the CTA and its related regulations nationwide, affecting an estimated 32.6 million businesses that would have been required to disclose ownership details by January 1, 2025. While the federal government has not yet responded, it is anticipated that the Treasury Department will appeal the ruling to the United States Court of Appeals for the Fifth Circuit. In the meantime, businesses are no longer required to comply with the CTA’s reporting obligations, and no penalties will be enforced during the stay.
The Corporate Transparency Act, passed by Congress in 2021, mandates that certain “reporting companies” (i.e., corporations, limited liability companies, or other similar entities that are created by the filing of a document with a secretary of state or a similar office under the law of a State) disclose information on their beneficial owners to combat money laundering and other illicit activities. While proponents argue that the CTA is necessary for transparency, opponents counter that it places undue burdens on small businesses, with compliance costs projected to exceed $22 billion in the first year alone.
