The Corporate Transparency Act (CTA), enacted in 2021, mandates that companies disclose their true ownership to the Financial Crimes Enforcement Network (FinCEN) to combat illicit financial activities. However, its implementation has faced legal challenges, leading to injunctions that have temporarily halted its enforcement.
As of January 27, 2025, the enforcement of beneficial ownership reporting obligations under the CTA remains suspended due to ongoing federal litigation and court orders.
What You Need to Know
- On January 23, 2025, the U.S. Supreme Court stayed a December 3, 2024, nationwide preliminary injunction issued by the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop v. McHenry. This injunction had halted enforcement of the CTA’s beneficial ownership reporting obligations, and the Supreme Court’s stay has effectively lifted that injunction.
- Despite the Supreme Court’s stay, enforcement of the CTA’s implementing regulations remains paused due to a separate preliminary injunction issued on January 7, 2025, by another federal judge in Smith v. U.S. Department of Treasury, et al. This injunction blocks enforcement of the regulations nationwide pursuant to section 705 of the Administrative Procedure Act.
- The U.S. Treasury Department’s FinCEN has confirmed that reporting companies are not required to file beneficial ownership information while the Smith injunction is in place, though they may do so voluntarily.
Ongoing Litigation and Legislative Developments
The U.S. Court of Appeals for the Fifth Circuit is set to hear oral arguments on the constitutionality of the CTA in the Texas Top Cop Shop case on March 25, 2025. The outcome of this case, along with other pending challenges to the CTA, may significantly impact the future of its enforcement.
With the recent inauguration of President Donald Trump, the future of the CTA's enforcement and potential appeals against existing injunctions are uncertain. Historically, the Trump administration has shown skepticism toward regulations perceived as burdensome to businesses. For instance, in 2017, President Trump signed a resolution repealing the "Disclosure of Payments by Resource Extraction Issuers" rule, which had required companies to report payments to foreign governments.
Given this precedent, the current administration may be less inclined to pursue appeals to reinstate the CTA's reporting requirements. Additionally, there is notable opposition to the CTA from Republican lawmakers and conservative groups, who argue that the act imposes undue burdens on small businesses and infringes on privacy rights. Recently, efforts to repeal the CTA have gained traction in Congress, including S.100 and H.R.425, which aim to revoke the law entirely. It is too early to determine whether these measures will garner sufficient support to pass.
Stay Tuned
Saul Ewing’s CTA Team continues to monitor CTA developments and will provide relevant updates as they become available.
