Corporate Transparency Act Receives Support From SCOTUS, but It’s Not Enough To Lift Nationwide Injunction

Corporate Transparency Act Receives Support From SCOTUS, but It’s Not Enough To Lift Nationwide Injunction

1.28.2025

By Alexandra C. McCormack and Russell H. Stern

As of Jan. 29, 2025, the requirement to report beneficial ownership information to the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) pursuant to the Corporate Transparency Act (CTA) is on hold and enforcement is stayed.

The CTA was enacted in 2021 by Congress as part of the National Defense Authorization Act for Fiscal Year 2021. The primary goal of the CTA was to combat money laundering, terrorist financing, and other illicit activities by improving corporate transparency. The CTA requires that non-exempt domestic and foreign reporting companies disclose pertinent information about the entity’s ownership structure and its beneficial owners – more specifically, the individuals who own or control the company. Reportable information includes full names, dates of birth, addresses, and identification numbers (such as a non-expired passport or driver’s license) of each beneficial owner.

Since the law went into effect on January 1, 2024, the constitutionality and reach of the CTA has been challenged in courts throughout the United States. To date, at least four circuits throughout the United States have been faced with the question and although the question was the same, the outcomes and reasoning have differed. What has resulted is a tug of war amongst the government seeking transparency, on the one hand, and concerned citizens and private interest groups seeking privacy, on the other, and no definitive answer to the not-so-simple question: is the CTA enforceable?

In the final weeks of December 2024 alone, CTA enforcement was stayed by the U.S. District Court for the Eastern District of Texas, reinstated by the Fifth Circuit with a deadline extension from FinCEN and then stayed once again by a different panel of the Fifth Circuit – each ruling on the underlying facts in the case of Texas Top Cop Shop, Inc. v. McHenry.

Earlier this week, the Supreme Court of the United States attempted, but was not successful in putting a pin in the nationwide back and forth. On Jan. 23 2025, SCOTUS weighted in on the U.S. District Court for the Eastern District of Texas’ decision in Texas Top Cop Shop, Inc. to temporarily stay CTA enforcement throughout the United States.

SCOTUS issued an order granting the government’s motion to stay the temporary nationwide injunction. The ruling by SCOTUS, at least initially, appeared to reinstate the reporting requirements and deadlines of the CTA. However, because of a separate nationwide injunction issued on Jan. 7, 2025 by a different federal district judge in Texas in the case of Smith v. U.S. Department of the Treasury, the nationwide stay on CTA enforcement remains in effect.

Therefore, reporting companies are not currently required to file beneficial ownership information with FinCEN. Reporting companies are not subject to penalty or liability if they fail to file this information, so long as the Smith injunction remains in effect. Notably, the Smith injunction was not addressed by SCOTUS in its decision earlier this week. FinCEN has interpreted the interplay between the Smith injunction and SCOTUS ruling in the same way and following the SCOTUS decision, FinCEN confirmed that filings remain optional for the time being, with no penalty for those who elect not to comply.

Following this week’s SCOTUS decision, the Texas Top Cop Shop Inc. case will return to the Fifth Circuit to consider the merits of the case – this is the same court that waffled on the issue in December. Ironically, if the government were to appeal the Smith injunction, the appeal in that case would also be heard by the Fifth Circuit. Although an appeal has not been filed by the government in Smith, if history is any indication, an appeal can be expected.

In recent weeks, the CTA has not only caught the attention of the judiciary, but also Congress. On Jan. 16, a bill was introduced in the House of Representatives to repeal the CTA. As of the date of this publication, the bill was referred to the House Committee on Financial Services, but no further action was taken.