Court lifts injunction on Corporate Transparency Act

A federal district court in Texas has stayed an injunction that had prevented enforcement of the Corporate Transparency Act and its beneficial ownership information reporting requirement, citing a Supreme Court decision that had lifted the injunction in a separate lawsuit. 

The CTA was signed into law as part of the National Defense Authorization Act of 2021 and requires individuals with an ownership interest in a limited liability company to disclose personal data to the Treasury Department’s Financial Crimes Enforcement Network as a way to deter illicit activity such as money laundering, tax fraud, drug trafficking and terrorism financing by anonymous shell companies. Failure to comply could result in up to two years of jail time and a $10,000 fine per violation. 

The move seems to pave the way for FinCen to begin enforcing the BOI requirement, although last week the House unanimously passed bipartisan legislation delaying the requirement for a year until Jan. 1, 2026 by a vote of 408 to 0. The Senate has not yet voted on the bill. FinCEN has previously said it would delay the BOI requirement by 30 days after the injunction was lifted.

Last month, the Supreme Court granted a stay against an injunction on the CTA in a case involving a Texas business called Texas Top Cop Shop that had sued over the requirement. However, a separate injunction involving another set of plaintiffs in Texas, Samantha Means and Robert Smith, had remained in place, according to the group suing on their behalf, the Texas Public Policy Foundation. On Tuesday, a court in Texas stayed that injunction, citing the Supreme Court decision, but further appeals are possible. There could be further appeals ahead, but for now proponents of the law are pleased by the latest court action. 

“With the removal of this final roadblock to enforcement of the Corporate Transparency Act, Treasury is now once again free to continue its full and faithful implementation of the most important anti-money laundering law of the past two decades,” said Ian Gary, executive director of the Financial Accountability and Corporate Transparency (FACT) Coalition, in a statement. “Today’s order, and the government’s continued strong defense of the CTA, serves as a reminder that cracking down on the money launderers enabling fentanyl trafficking and other crimes cannot wait.”

“As anticipated, the federal court in Texas has allowed the enforcement of this landmark law, in alignment with the Supreme Court’s recent decision,” said Scott Greytak, director of Advocacy for Transparency International US, in a statement. “Treasury should move swiftly to make sure that this vital national security law is fully enforced, and that America’s law enforcement officials are armed with the tools necessary to cut off the flow of dirty money from transnational criminals into the U.S.”

FinCEN has not yet issued new guidance since the move yesterday, but has previously said it would give businesses another 30 days to comply if the stay is granted: “If the district court’s order is stayed, thereby allowing FinCEN’s Reporting Rule to come back into effect, FinCEN intends to extend the reporting deadline for all reporting companies 30 days from the date the stay is granted. Further, in keeping with Treasury’s commitment to reducing regulatory burden on businesses, FinCEN, during that 30-day period, will assess its options to modify further deadlines or reporting requirements for lower-risk entities, including many U.S. small businesses, while prioritizing reporting for those entities that pose the most significant national security risks.”

Further action is also possible in Congress, where a bill was introduced last month by Sen. Tommy Tuberville, R-Ala., and Rep. Warren Davidson, R-Ohio,  to repeal the Corporate Transparency Act entirely. The Senate could act to take up the bill that was unanimously passed by the House last week to delay the reporting requirement until Jan. 1, 2026. Last week, after the House passed that bill, Sen. Tim Scott, R-S.C., introduced a companion bill in the Senate. New businesses were originally expected to begin complying with the law on Jan. 1, 2024, and existing businesses on Jan. 1, 2025.