Temporary relief from compliance obligations under the Corporate Transparency Act

By: Steven Eichorn

On December 3, 2024, a U.S. District Court[1] issued a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act (the CTA). The CTA requires “reporting companies” in the United States to disclose basic identifying information about their beneficial owners — the individuals who ultimately own or control a company — to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

The court issued the injunction because (i) the CTA represents a federal attempt to usurp a power left to the states since it is monitoring companies created under state law, and, under the Constitution, the federal government cannot interfere with the state’s rights in creating corporations, and, (ii) the CTA aims to terminate an attractive feature of state corporations, i.e. the anonymity afforded to owners of state corporations. Thus, the court held the CTA violated the Constitution and therefore issued a preliminary injunction.

Notably, the plaintiffs had only sought a preliminary injunction on behalf of themselves (and their members[2]). However, the court held the plaintiffs were likely to succeed on the merits of their claim and took the liberty to issue a rare, nationwide injunction. Although courts typically only grant the relief requested of them and are especially hesitant to issue nationwide injunctions, the court issued the nationwide injunction because its order was based on constitutional concerns and those are applicable to members of the organizational plaintiff nationwide, and, the court could not provide meaningful relief for the plaintiffs while still allowing the CTA to go into effect for all other persons (which was conceded by the government).

Critically, the Court’s order is a preliminary injunction only and not a final decision on the constitutionality of the CTA. However, it temporarily halts the ramifications from the most consequential U.S. anti-money laundering law of the past two decades from going into effect on January 1, 2025. Further, multiple other district courts have already rejected similar challenges to the CTA based on constitutional grounds and have held the CTA is permitted under the Commerce Clause because it regulates an instrumentality of interstate commerce.

While this decision is undoubtedly a setback for the government, it is nearly certain that the government will appeal any final decision, if not the preliminary injunction itself. Such an appeal remains likely even with the upcoming transition from the Biden administration to a second Trump administration, given that President Trump signed the CTA into law during his first administration. CTA enforcement could therefore resume if the government prevails in the district court—which is unlikely in light of the preliminary injunction and the court’s rejection of the government’s constitutional arguments—or if the district court is overturned on appeal, whether from a final order or from the decision granting the preliminary injunction. In the interim, the government may also request that the Court of Appeals for the Fifth Circuit grant an immediate stay of the injunction or narrow the injunction’s scope to only the plaintiffs and the organizational plaintiff’s members.

Finally, regardless of how this case plays out in the district court and on appeal, it is likely that the Supreme Court will ultimately decide whether Congress exceeded its authority in enacting the CTA. Federal district courts have issued conflicting decisions, and an appeal from one such decision is currently pending before the Eleventh Circuit.[3] Given the CTA’s drastic changes to corporate disclosure requirements, and the important constitutional questions they raise, the Supreme Court is likely to want to have the last word.

[1] Texas Top Cop Shop, Inc., et al. v. Merrick Garland, No. 4:24-cv-00478 (E.D. Tex. Dec. 3, 2024).

[2] One of the plaintiffs was an organization that filed on behalf of its members.

[3] Nat’l Small Bus. United v. U.S. Dep’t of Treas., No. 24-10736 (11th Cir. 2024).