Corporate Transparency Act Update - Important Developments and Next Steps

December 19, 2024

Recent legal developments have significantly impacted the enforcement of the Corporate Transparency Act (“CTA”), with a nationwide preliminary injunction issued, affecting all reporting companies. Here’s what you need to know about the current legal landscape and how it may affect your compliance obligations.

Fort Lauderdale, Fla. (December 19, 2024) - Recent legal developments have significantly impacted the enforcement of the Corporate Transparency Act (“CTA”), with a nationwide preliminary injunction issued, affecting all reporting companies. Here’s what you need to know about the current legal landscape and how it may affect your compliance obligations.

Key Updates: 

  • A nationwide injunction against the Corporate Transparency Act remains in effect, temporarily halting reporting requirements. 
     
  • The government is actively challenging the injunction, and the situation could change.  
     
  • We recommend that companies continue preparing to comply with the CTA in case the injunction is lifted.

A. Background

The CTA requires certain companies to report information about their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). The goal of the CTA is to combat money laundering, terrorist financing, and other illicit activities.  

B. December 2024 Updates

  • Nationwide Injunction: On December 3, 2024, a federal court in Texas issued a nationwide injunction temporarily halting enforcement of the CTA. The injunction was issued in response to a lawsuit filed by several businesses and individuals who argued the CTA is unconstitutional. The court agreed with the plaintiffs, finding that the CTA likely exceeds Congress’s authority and violates the Fourth Amendment. 
     
  • Government Appeal: On December 5, 2024, the Department of Justice (“DOJ”), on behalf of Treasury, appealed this decision to the Fifth Circuit Court of Appeals. The DOJ argues that the injunction should be lifted, as the CTA is a critical tool in the fight against financial crime.  
     
  • Motion to Stay: The DOJ has also filed a motion to stay (pause) the injunction while the appeal is pending. On December 17, 2024, this motion was denied by the District Court, but the DOJ has indicated it will seek a stay from the Fifth Circuit. 
     
  • Possible Congressional Action: In a legislative proposal dated December 17, 2024, Congress is considering extending the CTA compliance deadline for existing companies from the initial deadline of January 1, 2025, to until January 1, 2026. This would give companies more time to prepare for compliance. It should be noted that this proposal does not impact the filing deadline for newly-formed companies, which is 90 days after formation for companies formed in 2024 and 30 days after company formation beginning January 1, 2025.

C. FinCEN’s Position

On December 7, 2024, FinCEN issued an alert stating that it will comply with the Texas injunction “for as long as it remains in effect.” This means that, for now, FinCEN will not require companies to file beneficial ownership information. However, FinCEN has also emphasized the importance of the CTA in combating financial crime and has encouraged companies to voluntarily comply with the reporting requirements.  

D. Implications for Your Business

  • Voluntary Compliance. While the injunction is active, companies are not required to submit their Beneficial Ownership Information (“BOI”) reports. However, they may choose to do so voluntarily. We recommend maintaining readiness by compiling necessary ownership information should the injunction be overturned.
     
  • Uncertainty Ahead. The legal challenges to the CTA are ongoing, and the situation could change. The case has been moved swiftly, with the government’s emergency motion for a stay denied, indicating a complex legal battle ahead. The outcome could affect whether CTA requirements snap back into place possibly with little notice, or Congress could amend the law.

E. Recommended Actions

  1. Stay Informed. The legal situation is fluid, with potential for rapid change. Continue to monitor updates as they could critically impact compliance strategies. 
     
  2. Prepare Documentation. Continue preparing necessary documentation for compliance to avoid any last-minute rush should the legal situation change. If your company prefers to be proactive, we can assist you with voluntarily filing your beneficial ownership information now.  
     
  3. Consult with Us. Our team remains at the forefront of these developments and is prepared to assist you in navigating these changes effectively.

While the CTA’s enforcement is currently paused, the situation is dynamic and subject to change based on ongoing legal proceedings and legislative actions. We commit to keeping you informed and helping you navigate this complex regulatory landscape.

Should you have any questions or require further guidance, please do not hesitate to reach out to the author of this alert or related attorneys. Visit our Corporate Practice page to learn more about our capabilities in this area. 

Author: 

Soo Jin Isicoff, Associate