Corporate Transparency Act
Flip Flop Top Cop: Navigating Beneficial Ownership Reporting Requirements Amid Recent Legal Developments
January 20, 2025
By: Jay Phillips
Flip Flop Top Cop: Navigating Beneficial Ownership Reporting Requirements Amid Recent Legal Developments
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN). Additionally, these companies are not subject to liability for failing to file such information while the court order remains in effect. However, reporting companies may still choose to voluntarily submit beneficial ownership information reports. Below is an overview of the current legal landscape and its implications for businesses:
Key Updates: Texas Top Cop Shop, Inc., et al. v. Garland, et al.
The Corporate Transparency Act (CTA) serves as a tool for “safeguarding the U.S. and global financial systems against illicit finance threats, such as terrorism financing, drug trafficking, and money laundering.” By requiring companies to disclose beneficial ownership, the CTA aims to ensure fairness among law-abiding businesses and prevent bad actors from exploiting legal loopholes.
On December 3, 2024, in Texas Top Cop Shop, Inc., et al. v. Garland, et al., the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting enforcement of the CTA’s beneficial ownership reporting requirements. Subsequently:
- December 5, 2024: The Department of Justice (DOJ), on behalf of the Treasury Department, filed a Notice of Appeal and sought a stay of the injunction.
- December 23, 2024: A panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay, temporarily lifting the injunction.
- December 26, 2024: Another Fifth Circuit panel vacated the stay, reinstating the district court’s injunction.
- December 31, 2024: The DOJ requested the Supreme Court to stay the injunction pending appeal.
As of now, FinCEN is adhering to the district court’s order, and reporting companies are not mandated to file beneficial ownership information with FinCEN. Nevertheless, businesses may voluntarily submit such reports during this period.
Other Legal Challenges to the CTA
The case of Texas Top Cop Shop, Inc. is one of several legal battles surrounding the CTA. Here are notable developments:
Favorable Decisions for Plaintiffs
- March 1, 2024: The U.S. District Court for the Northern District of Alabama ruled in Isaac Winkles, et al. that the CTA exceeds Congress’ constitutional authority. The court enjoined Treasury from enforcing the CTA against the plaintiffs, including the National Small Business Association and its members.
Favorable Decisions for the Treasury
- April 29, 2024: The U.S. District Court for the Western District of Michigan denied a motion for a preliminary injunction in Small Business Association of Michigan, et al. v. Yellen, et al..
- September 20, 2024: The U.S. District Court for the District of Oregon declined to issue a preliminary injunction in Firestone, et al. v. Yellen, et al.. The court found the plaintiffs unlikely to succeed on constitutional claims.
- October 24, 2024: The U.S. District Court for the Eastern District of Virginia denied a preliminary injunction in Community Associations Institute, et al. v. Yellen, et al., similarly ruling against the plaintiffs’ constitutional claims.
What This Means for Businesses
While the preliminary injunction in Texas Top Cop Shop, Inc. is in effect, companies are not required to submit beneficial ownership reports to FinCEN. However, businesses may voluntarily comply to stay ahead of potential future enforcement deadlines.
Given the complex and evolving nature of these legal proceedings, companies should:
- Monitor Developments: Stay informed about court rulings and any updates from FinCEN or the Treasury.
- Evaluate Compliance Options: Consider the benefits of voluntarily submitting beneficial ownership information, even in the absence of a mandate.
- Seek Legal Guidance: Consult with legal professionals to ensure compliance with applicable laws and to navigate potential risks.
For further information or assistance in understanding your obligations under the CTA, please contact our team. We are here to help you stay compliant in a rapidly changing regulatory environment.
Disclaimer: This blog is for informational purposes only and does not constitute legal advice. Always consult with a qualified attorney for guidance tailored to your specific circumstances.