Nationwide Injunction Halts Corporate Transparency Act

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Nationwide Injunction Halts CTA

FinCEN Suspends Enforcement

The Corporate Transparency Act (CTA), enacted as part of the Anti-Money Laundering Act of 2020, has faced significant constitutional challenges, culminating in a nationwide injunction. As a result, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has suspended enforcement of the CTA’s reporting requirements, providing temporary relief to affected businesses.

What Is the CTA?

The CTA mandates that certain business entities disclose information about their “beneficial owners”—individuals who exercise significant control or own at least 25% of the entity—to FinCEN. This measure aims to combat money laundering, terrorism financing, and tax fraud.

Entities such as publicly traded companies, banks, and large businesses with over 20 full-time employees are exempt, but smaller corporations and LLCs must comply. Penalties for noncompliance or false reporting include fines up to $10,000 and imprisonment for up to two years.

Why Did FinCEN Suspend Enforcement?

On December 3, 2024, a federal court in Texas issued a nationwide injunction in Texas Top Cop Shop, Inc. v. Garland, ruling that the CTA exceeds Congress’s constitutional powers. This decision aligns with a similar ruling in Alabama but contrasts with decisions in Oregon and Virginia, where courts upheld the CTA. Following this injunction, FinCEN announced on December 6, 2024, that it would suspend enforcement of the CTA’s reporting deadlines while the injunction remains in effect.

What Does the Suspension Mean?

For now, businesses are not required to file beneficial ownership reports under the CTA. This includes suspending the original January 1, 2025, reporting deadline for entities formed before 2024. However, the Department of Justice has appealed the Texas decision, and a reversal could reinstate compliance requirements with little notice. Businesses should remain prepared for potential changes.

What’s Next?

The CTA’s fate will likely be decided by the U.S. Supreme Court, as appeals are underway in multiple circuits. A decision to uphold or strike down the CTA could redefine Congress’s regulatory powers under the Commerce Clause, with far-reaching implications for businesses nationwide.

Key Takeaways for Chicago Businesses

  1. Monitor FinCEN Announcements: Stay informed on any changes to enforcement policies.
  2. Prepare for Possible Compliance: If the injunction is lifted, businesses may need to report ownership details promptly.
  3. Understand Exemptions: Many businesses, such as those with more than 20 employees, may be exempt from the CTA’s requirements.

Conclusion

FinCEN’s suspension of CTA enforcement provides temporary relief to businesses, but the situation remains fluid. Chicago businesses should remain vigilant, consult legal counsel, and prepare for potential compliance requirements if the injunction is reversed. As the courts address these constitutional challenges, the outcome could have long-term impacts on regulatory practices nationwide.