On December 23, the Fifth Circuit Court of Appeals lifted the stay on the Corporate Transparency Act (CTA), reinstating its enforcement nationwide. The CTA requires certain non-exempt entities to report the identities of their beneficial owners to the U.S. Treasury Department in order to combat financial crimes such as money laundering and terrorism financing. But shortly after the decision, the Financial Crimes Enforcement Network (FinCEN), which administers the CTA, announced that the reporting deadline for companies that were created before January 1, 2024 to file their initial beneficial ownership information reports (BOIRs) has been extended until January 13, 2025.
The Appellate Court’s decision overturned a prior nationwide injunction issued by a Texas District Court which had blocked the CTA and its reporting rule. The court had found the statute unconstitutional, citing concerns over states’ rights under the Tenth Amendment and the Commerce Clause. However, in its decision, the Appellate Court emphasized Congress’s broad authority under the Commerce Clause to regulate economic activities that substantially affect interstate commerce, noting that the CTA’s reporting requirements target the anonymous ownership and operation of businesses. The court found that the government had made a strong showing that it is likely to succeed in defending the constitutionality of the CTA.
The court rejected the plaintiffs’ challenges to the above analysis. First, it noted that the CTA specifically regulates businesses with commercial activity, excluding many dormant entities from its reporting requirements, and allows for exemptions where reporting would not serve the public interest or aid in detecting financial crimes. Second, the court explained that to succeed, the plaintiffs would need to show that no circumstances exist under which the CTA could be constitutional.
The court then considered whether the government would suffer irreparable harm if the nationwide injunction remained in place. It found that blocking the CTA would cause irreparable harm to the government, as enjoining a statute passed by Congress necessarily harms the government’s ability to enforce laws enacted by its representatives.
The court next assessed whether restoring the reporting requirement would substantially injure the other parties. It found that the harm to the plaintiffs would be minimal, noting that the filing requirement for the CTA is straightforward and relatively inexpensive. The court estimated that a typical company would only need around 90 minutes to complete the required BOIR, which has no filing fee.
Finally, the court evaluated the public interest, emphasizing the need to combat financial crime and protecting national security. It pointed out that a last-minute nationwide injunction would undermine efforts to strengthen international anti-money laundering regimes and address gaps in the U.S. regulatory framework.
The Fifth Circuit’s decision to lift the nationwide injunction and reinstate the CTA’s enforcement reaffirms Congress’s authority to regulate economic activity while highlighting the broader regulatory challenges that businesses must navigate. But with legal challenges still ongoing, the fate of the CTA remains subject to change.
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