FinCEN Issues Corresponding But Limited Extensions of Reporting Deadlines
The Fates of the CTA and Corresponding CDD Rule Remain in a State of Flux
The Fifth Circuit has granted the government’s request to stay temporarily the order and injunction issued by the United States District Court for the Eastern District of Texas, which had issued a nationwide stay prohibiting enforcement of the Corporate Transparency Act (“CTA”).
As we have blogged, on December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., the Eastern District of Texas issued an order (“Order”) granting a nationwide preliminary injunction that: (1) enjoined the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stayed all deadlines to comply with the CTA’s reporting requirements.
The Order created great uncertainty, if not chaos, because the CTA’s reporting deadline for covered entities existing prior to January 1, 2024 was January 1, 2025. The uncertainty regarding the status of the CTA was exacerbated last week during the looming federal showdown, in which the initially proposed budget stop-gap bill included language which would have extended the CTA’s filing deadline for previously-existing covered entities by one year. But, that initial spending bill did not pass, and the spending bill which ultimately did pass did not include any language regarding the CTA.
Nonetheless, these political machinations suggest that the CTA and its implementation may face a rocky road when the new administration takes over in January 2025. The CTA could be undone by Congress, or just not enforced by a new administration. Or the implementing regulations could be revised significantly. It’s very hard to predict right now.
The Fifth Circuit Opinion
Back to the case at issue. The Department of Justice (“DOJ”), on behalf of the Department of the Treasury, filed a notice of appeal of the Order on December 5, 2024. Multiple industry groups filed amicus briefs. The Fifth Circuit panel ruled unanimously to reverse the national stay, and ruled 2-1 to reverse the stay applicable to the specific parties before the Court.
The first substantive paragraph in the Fifth Circuit’s opinion is important because it provides a bellwether regarding the various ongoing litigations challenging the CTA:
. . . . [T]he government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality. When Congress passed the bipartisan statute in 2021, it used its “broad authority under the Commerce Clause” to regulate economic activity. See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 549 (2012). As stated, the CTA requires certain corporate entities to report their beneficial ownership interest in order to target illicit financial activity. See 31 U.S.C. § 5336. In doing so, it regulates anonymous ownership and operation of businesses. Those “are part of an economic class of activities that have a substantial effect on interstate commerce.” See Gonzales v. Raich, 545 U.S. 1, 17 (2005) (internal quotation marks omitted). Thus, a reporting requirement for entities engaged in these economic activities falls within “more than a century of [the Supreme] Court’s Commerce Clause jurisprudence.” See id. at 29 n.38
The Fifth Circuit went on, suggesting that the CTA ultimately would pass muster under the Constitution on the merits:
Independently, the government has made a strong showing against the Businesses’ facial challenge to the CTA. The Supreme Court has been clear that a successful facial “challenger must establish that no set of circumstances exists under which the Act would be valid.” United States v. Salerno, 481 U.S. 739, 745 (1987). In other words, “[t]he fact that [a statute] might operate unconstitutionally under some conceivable set of circumstances is insufficient to render it wholly invalid.” Id.; see also United States v. Rahimi, 602 U.S. 680, 701 (2024) (confirming that, when assessing facial challenges, courts must “consider the circumstances in which [the statute is] most likely to be constitutional” instead of “focus[ing] on hypothetical scenarios where [the statute] might raise constitutional concerns.”). Here, the CTA at least operates constitutionally when it requires that corporations engaged in business operations affecting interstate commerce disclose their beneficial owner and applicant information to the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). See Raich, 545 U.S. at 17. Thus, the statute is likely constitutional on its face. See Salerno, 481 U.S. at 745.
Moving to the other factors, the Fifth Circuit held that enjoining a statute passed through the legislative process inflicts irreparable harm, and the balance of equities weighs in favor of the government. “To start, the harm that a stay would cause the [plaintiffs/appellees] is minimal. FinCEN estimated that a typical, simple company would spend about ninety minutes (or about $85 worth of time) to complete and file CTA’s required report, which may be filed for free.” Weighed against the “urgent interest” of “combatting financial crime,” the equities favor a stay of the preliminary injunction.
In light of this development, FinCEN has indicated that reporting deadlines have been extended “because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect[.]” The extensions are limited:
- Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
- Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
- Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
Meanwhile, litigation regarding the CTA proceeds in other federal district courts. The Eleventh Circuit still must issue an opinion regarding another order by the Northern District Court of Alabama, granting a preliminary injunction on the grounds that the CTA did not satisfy the Commerce Clause. Courts in the District of Oregon and the Eastern District of Virginia have rejected similar arguments calling for preliminary injunctions staying the enforcement of the CTA. The Fifth Circuit noted the existence of all of these litigations in its opinion. Surely, this opinion by the Fifth Circuit will inform the forthcoming analysis of the Eleventh Circuit.
Ultimately, the Supreme Court may decide the fate of the CTA, and/or the new administration may weigh in on its enforcement and/or implementing regulations and alter both. For now, however, the CTA remains in place.
Finally, FinCEN still has not issued any proposed regulations regarding how to “align” the CTA with the existing Customer Due Diligence (“CDD”) Rule applicable to banks and some other financial institutions.
