Corporate Transparency Act Enforcement II: The Government Strikes Back

On December 3, 2024, the Eastern District of Texas made waves by enjoining the federal government from enforcing the Corporate Transparency Act (CTA). This decision effectively relieved corporations of the obligation to comply with the CTA’s Beneficial Owner Information (BOI) reporting requirements—at least temporarily.

The ruling sent a strong message that federal oversight of corporate ownership structures might have overstepped constitutional boundaries. However, this victory for critics of the CTA didn’t last long.

Just a few weeks later, on December 23, 2024, the Fifth Circuit Court of Appeals reversed course, staying the district court’s injunction. With this decision, compliance with the CTA reporting requirements is back on track—pending further appeals.

So, what does this mean for businesses? Let’s break it down.

District Court Ruling (December 3, 2024): Blocking the CTA Nationwide

• Court: Eastern District of Texas
• Judge: Amos Mazzant
• Key Findings:
  1. Constitutional Overreach – The CTA exceeded Congress’s authority under the Commerce Clause.
  2. State Sovereignty – Corporate governance traditionally falls under state jurisdiction, and federal oversight disrupts this balance.
  3. Privacy Concerns – BOI reporting requirements potentially violate First and Fourth Amendment rights.
  4. Irreparable Harm – Compliance costs and penalties created undue burdens for businesses.
• Outcome: A nationwide injunction halted CTA enforcement across the U.S.

Fifth Circuit Ruling (December 23, 2024): Putting the CTA Back in Play

• Court: Fifth Circuit Court of Appeals
• Panel: Judges Stewart, Haynes, and Higginson
• Key Findings:
  1. Likelihood of Success on Appeal – The government demonstrated a strong chance of defending the CTA under the Commerce Clause.
  2. Regulatory Authority – The CTA’s regulation of businesses engaged in interstate commerce is constitutionally valid.
  3. Minimal Compliance Burden – An estimated cost of $85 per business (based on a 90-minute filing process) was deemed reasonable.
  4. Public Interest – Preventing financial crime and safeguarding national security outweighed the plaintiffs’ concerns.
  5. Irreparable Harm to Government – Delaying CTA enforcement would jeopardize anti-money laundering efforts.
• Outcome: The injunction was stayed, and compliance requirements resumed pending appeal resolution.

Constitutional Authority: The district court ruled that the CTA exceeded Congress’s authority under the Commerce Clause, while the Fifth Circuit determined it fell within Congress’s powers to regulate interstate commerce.

State vs. Federal Authority: The district court emphasized that the CTA intruded into state governance, whereas the Fifth Circuit upheld federal authority based on interstate commerce impact.

Privacy Rights: The district court found privacy concerns were violated under the First and Fourth Amendments, but the Fifth Circuit concluded that transparency outweighed privacy issues.

Irreparable Harm: The district court highlighted compliance costs as a burden to businesses, but the Fifth Circuit stressed that halting the CTA could harm public interests and national security.

Scope of Injunction: The district court imposed a nationwide block on enforcement, while the Fifth Circuit stayed the injunction, allowing compliance to proceed.

With the Fifth Circuit ruling in place, most businesses must prepare to comply with the CTA’s reporting requirements by January 13, 2025. The Financial Crimes Enforcement Network (FinCEN) has already issued updated compliance guidelines, so businesses should act now to ensure they meet the new deadlines.

The CTA’s legal journey highlights the ongoing tension between federal regulatory authority and individual privacy rights. While the Fifth Circuit’s decision allows enforcement to proceed, the case is far from settled. Oral arguments for the appeal are scheduled for the next available panel session.

At Amini & Conant, we’ll continue monitoring developments and providing updates. For now, businesses should consult their legal advisors and prepare for the upcoming compliance deadline.

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