Nationwide Preliminary Injunction Halts Enforcement of the Corporate Transparency Act: Implications for U.S. Businesses
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al. (Case No. 4:24-cv-478), halting the enforcement of the Corporate Transparency Act (CTA) and its reporting requirements. This decision has significant implications for millions of businesses across the United States.
The CTA, enacted by Congress in 2021 as part of the National Defense Authorization Act, aimed to combat money laundering, terrorism financing, and other illicit financial activities by requiring most businesses to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Unlike state regulations, which generally do not mandate BOI disclosure, the CTA imposed this federal requirement on an estimated 32.5 million U.S. companies, among others.
Key Aspects of the Injunction
The court’s ruling temporarily suspends the following CTA reporting deadlines:
- January 1, 2025, for companies existing as of December 31, 2023
- 90 days from formation for entities formed in 2024
- 30 days from formation for entities created or registered after 2024
In its decision, the court expressed constitutional concerns, describing the CTA as “quasi-Orwellian” and suggesting it might exceed congressional authority. The injunction applies nationwide, relieving reporting companies from compliance obligations and potential penalties while it remains in effect.
Government Response and FinCEN Statement
The U.S. Department of Justice swiftly filed a notice of appeal on December 5, 2024. In response to the court’s decision, FinCEN issued a statement on December 7, 2024, confirming that:
- Reporting companies are not currently required to file BOI with FinCEN.
- Companies will not face liability for non-compliance while the injunction is in force.
- Voluntary submission of BOI reports is still permitted.
Implications for Businesses
While the injunction provides temporary relief from CTA compliance, the legal landscape remains uncertain.
Companies should:
- Stay informed about ongoing legal developments.
- Continue preparing BOI reports in case the injunction is lifted.
- Be ready to act quickly if reporting deadlines are reinstated.
- Consult legal counsel to navigate the complex regulatory environment.
The Texas Top Cop Shop case has created a significant pause in the implementation of the CTA’s beneficial ownership reporting requirements. However, given the government’s appeal and the preliminary nature of the injunction, businesses should remain vigilant and prepared for potential changes in the legal landscape. As the situation evolves, it will be crucial for companies to stay informed and maintain readiness to comply with any new deadlines or requirements that may emerge from further legal proceedings.
