Corporate Transparency Act Injunction
December 11, 2024
By: Jay Phillips
Corporate Transparency Act Injunction: A Critical Development from the Eastern District of Texas
The Eastern District of Texas recently issued a national injunction that temporarily halts the enforcement of certain provisions of the Corporate Transparency Act (CTA), marking a significant turning point for businesses across the United States. This ruling adds complexity to an already controversial statute aimed at combating financial crimes such as money laundering and terrorist financing.
Background of the Corporate Transparency Act
As detailed more thoroughly in our previous blog, the CTA, enacted in January 2021, mandates that certain businesses disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
Under the law, businesses must report the names, birth dates, addresses, and identification numbers of individuals who either exercise substantial control over the entity or own at least 25% of it.
The Injunction: Pumping the Brakes
On December 3, 2024, the Eastern District of Texas issued an injunction barring the enforcement of the CTA, citing potential constitutional violations relating to the Necessary and Proper Clause and the Commerce Clause.
The plaintiffs argued that the CTA imposes undue burdens on small businesses without sufficient safeguards to protect against unauthorized access to sensitive information. The court appeared to unequivocally agree with the plaintiffs.
Implications for Businesses
The injunction brings temporary relief to many small businesses worried about meeting the CTA’s reporting deadline, previously set for December 31, 2024, for entities existing prior to January 1, 2024. It also creates uncertainty, as businesses are now left wondering how to prepare for compliance while the legal challenges play out.
What’s Next?
The injunction does not mark the end of the CTA but serves as a pause to maintain the status quo. Legal battles will continue, and Congress or the Department of Treasury may be prompted to revisit the statute and/or regulations to address the court’s concerns. However, businesses should remain vigilant and keep a line of communication with their attorney, as the injunction could be lifted, requiring rapid compliance with the CTA’s reporting requirements.
Companies should consult legal counsel to stay updated on the CTA’s evolving requirements and prepare contingency plans to ensure compliance if enforcement resumes.