UNCERTAIN FUTURE FOR THE CORPORATE TRANSPARENCY ACT AMID RECENT SUPREME COURT DECISION

Emmanuel Cadet

The Corporate Transparency Act (“CTA”) was enacted in 2021 as part of the National Defense Authorization Act.[1] It was enacted to combat illicit financial activities such as money laundering, tax fraud, and the financing of terrorism. The CTA seeks to increase corporate transparency by requiring certain companies to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). The CTA “requires certain business entities to file, in the absence of an exemption, information on their ‘beneficial owners.’”[2] A beneficial owner is defined as “(i) each individual, if any, who directly or indirectly owns 25% or more of the equity interests of a legal entity customer (the ownership prong); and (ii) a single individual with significant responsibility to control, manage, or direct a legal entity customer….”[3]

            The CTA governs reporting companies, meaning corporations, limited liability companies, or other similar entities that are created by the filing of a document with a secretary of state or similar office under the law of a state, or formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state.[4]

            The CTA took effect on January 1, 2024, and required companies to provide a Beneficial Ownership Information (“BOI”) Report, disclosing information such as the beneficial owner’s full legal name, current U.S. address, jurisdiction, and IRS Taxpayer Identification Number.[5] Companies that do not meet the CTA’s exemptions and were formed prior to January 1, 2024 were given a full year to make an initial report.[6]

            Despite the strong rationale behind the CTA’s implementation, it has faced significant legal scrutiny. The mandate for non-exempt companies to disclose beneficial ownership information has prompted multiple legal challenges questioning its constitutionality. Of the various legal challenges, Texas Top Cop Shop, Inc. v. Garland,[7] has garnered significant attention. On December 3, 2024, the U.S. District Court in Texas issued a nationwide injunction (as amended on December 5, 2024) in Texas Top Cop Shop, Inc.[8] The court determined that the plaintiffs were likely to succeed on their claim that the CTA exceeds Congress’ enumerated powers under the Constitution.[9] The looming question is whether CTA’s requirements for companies to disclose detailed personal information about their beneficial owners represent an unprecedented federal intrusion into areas traditionally managed by the states. The U.S. District Court in Texas found that it did, and their decision was later upheld by the U.S. Court of Appeals for the Fifth Circuit on December 23, 2024. As a result, FinCEN announced that reporting companies were not required to file a BOI Report.

            Concerns about companies’ obligations to file a BOI Report resurfaced when the U.S. Supreme Court lifted the nationwide injunction issued by the Eastern District of Texas on January 23, 2025. The Court granted the government’s application to stay the nationwide injunction issued in Texas Top Cop Shop, Inc. v. Garland,[10] while the appeal is pending before the U.S. Court of Appeals for the Fifth Circuit.[11] However, the Court declined to address the nationwide reporting pause stemming from Smith v. United States Dep’t of the Treasury,[12] issued on January 7, 2025.[13] As of the Court’s January 23 ruling, the decision has no immediate effect on current reporting requirements.[14]

            The Treasury’s Financial Crimes Enforcement Network (FinCEN), responsible for overseeing the CTA’s implementation, issued an alert on Friday, January 24, 2025, stating that compliance with the CTA is not mandatory while the current injunction remains in effect.[15] The future of the CTA now largely rests with the new administration under President Donald J. Trump, with ongoing litigation expected to shape its fate in the coming months.

[1] 31 U.S.C. § 5336.

[2] Robert Wilson Downes, et al., The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information, American Bar Association (Apr. 16, 2021), https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/#:~:text=The%20Corporate%20Transparency%20Act%20is,other%20misconduct%20through%20business%20entities.

[3] Id.

[4] 31 U.S.C. § 5336(a)(11)(A).

[5] Andrew Lom & Rachael Hashmall, The Corporate Transparency Act is here—are you ready?, Norton Rose Fulbright (Jan. 1, 2024), https://www.nortonrosefulbright.com/en/knowledge/publications/55b72cd0/the-corporate-transparency-act-is-here.

[6] Id.

[7] No. 4:24-CV-478, 2024 WL 5049220 (E.D. Tex. Dec. 5, 2024).

[8] Id.

[9] Shay Dvoretzky et al., After Nationwide Injunction of Corporate Transparency Act, FinCEN Suspends Reporting Requirements as Four Circuits Grapple With Act’s Constitutionality, Skadden Pub. (Dec. 13, 2024), https://www.skadden.com/insights/publications/2024/12/after-nationwide-injunction-of-corporate-transparency-act-fincen-suspends-reporting.

[10] No. 24-40792, 2024 WL 5203138 (5th Cir. Dec. 23, 2024).

[11] McHenry v. Texas Top Cop Shop, No. 24A653, 2025 WL 272062 (U.S. Jan. 23, 2025).

[12] 2025 WL 41924 (E.D. Tex. Jan. 7, 2025).

[13] See Tristan Navera & John Woolley, Corporate Transparency Act’s Fate Unclear After High Court Order, Bloomberg Law (Jan. 24, 2025, 1:25 PM), https://news.bloomberglaw.com/us-law-week/corporate-transparency-act-still-in-limbo-after-high-court-order; see also Mengqi Sun, Corporate Transparency Act Still Blocked Despite Supreme Court Decision, Wall St. J. (Jan. 23, 2025, 3:28 PM), https://www.wsj.com/articles/corporate-transparency-act-still-blocked-despite-supreme-court-decision-5427b7ac.

[14] Id.

[15] Sun, supra note 13.