The U.S. Supreme Court recently addressed the enforcement of the Corporate Transparency Act (CTA), a landmark anti-corruption law requiring companies to disclose their true owners, in a brief, unsigned order issued on January 23, 2025. In this order, the Court granted the federal government's request to enforce the CTA while an appeal is pending in the U.S. Court of Appeals for the Fifth Circuit. This decision effectively stayed a previous nationwide injunction issued by a federal district judge in Texas, which had barred the enforcement of the CTA.

On 3 December 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, blocking the enforcement of the Corporate Transparency Act (CTA). The court determined that the CTA and its implementing regulations were likely unconstitutional, preventing the Financial Crimes Enforcement Network (FinCEN) from enforcing the reporting requirements set to take effect on January 1, 2025. The court's decision was based on constitutional concerns, including the argument that the CTA exceeded Congress's authority under the Commerce Clause. This injunction halted the requirement for companies to disclose their beneficial ownership information to FinCEN, a key provision of the CTA aimed at combating money laundering and other illicit financial activities.

Following this injunction, the U.S. Department of Justice appealed the decision, and on January 23, 2025, the Supreme Court allowed the enforcement of the CTA to proceed while the appeal is pending. However, it's important to note that despite the Supreme Court's action, the implementation of the CTA remains on hold due to a separate nationwide injunction issued by another federal judge in Texas. As a result, the Financial Crimes Enforcement Network (FinCEN) has stated that reporting companies are not currently required to file beneficial ownership information until further notice.

Key Facts About the Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) was enacted in January 2021 as part of the National Defense Authorization Act (NDAA). It is a key measure aimed at improving transparency in business ownership and tackling financial crimes such as money laundering and corruption. It specifically targets the use of anonymous shell companies, which have been used by criminals to conceal illicit financial activity.

Key Provisions:

• Disclosure Requirements:
  • Requires most U.S. companies to report the beneficial owners—individuals who own or control a company— to the Financial Crimes Enforcement Network (FinCEN).
  • Companies must provide details such as name, address, date of birth, and identification number (e.g., passport or driver’s license number) of each beneficial owner.
• Exemptions:
  • Certain entities are exempt, such as large, regulated companies (e.g., publicly traded companies, banks, and other financial institutions) and companies with more than 20 employees and significant revenue.
• Database:
  • The information will be stored in a confidential database managed by FinCEN.
  • Access to the database will be limited to law enforcement agencies, certain regulatory bodies, and authorized entities like financial institutions for due diligence purposes.

References:

The full text of the Corporate Transparency Act (CTA) is available on HERE.