On December 3, 2024, there was an unexpected order by the U.S. District Court for the Eastern District of Texas. The court issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA), questioning whether CTA violates the U.S. Constitution.
Judge Amos L. Mazzant stated in Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.):
“Having determined that Plaintiffs have carried their burden, the Court GRANTS Plaintiff’s Motion for a Preliminary Injunction. Therefore, the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
What Is FinCEN?
The U.S. Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury. FinCEN’s goal is to safeguard the financial system from illicit use and combat money laundering and promote national security.
What Is CTA?
The CTA requires certain domestic and foreign entities to report on their beneficial ownership information (BOI). Congress assigned the administration and enforcement of the CTA to FinCEN. FinCEN’s CTA regulations are effective from January 1, 2024.
FinCEN Response to Injunction
On December 6, 2024, FinCEN posted the following alert on its site:
“Alert: Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
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The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.
On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.
Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
[Go to: https://fincen.gov/boi and scroll down to Alerts to see the above response on the FinCEN site.]
Layers of Appeal in U.S. Courts
Within the U.S. Federal Court system, a District Court is a lower level court. FinCEN filed its notice of appeal of the individual judge’s decision to the next level court. The next level court in this case is the U.S. Court of Appeals for the Fifth Circuit. If FinCEN were to lose its appeal at the Fifth Circuit, it could request that the U.S. Supreme Court hear its case. However, the U.S. Supreme Court is not required to accept every appeal request that it receives.
FINCEN to CTA Service Companies
On December 6, 2024, FinCEN also contacted CTA service companies which provide direct CTA BOIR filing from the service provider to FinCEN. FinCEN’s message was as follows:
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
As a company with system-to-system Application Programming Interface (API) access to transmit beneficial ownership information reports (BOIRs) to FinCEN, we are writing to inform you that all API access to submit such reports will be suspended on Friday, December 6th at 5:30 PM EST. We will be back in touch with further guidance.”
For assistance, please contact me via my contact page or at elizabeth@elizabethmcmorrowlaw.com.
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