On December 3, 2024, the United States District Court for the Eastern District of Texas issued a preliminary injunction against the Corporate Transparency Act (CTA) and its implementing regulations.
The CTA, signed into law on January 1, 2021, expanded anti-money laundering laws and introduced new reporting requirements for certain businesses operating in the U.S. Starting in 2024, many small businesses were required to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This initiative aimed to create a national database to aid national security and law enforcement agencies in combating the use of shell companies for criminal activities such as money laundering and terrorism financing. To ensure compliance, the CTA included significant civil and criminal penalties.
On May 28, 2024, six plaintiffs, including the National Federation of Independent Businesses (NFIB), filed a complaint seeking a declaratory judgment that the CTA is unconstitutional. Subsequently, on June 3, 2024, the plaintiffs filed a Motion for Preliminary Injunction to halt the enforcement of the CTA, citing significant compliance burdens, legal costs, and alleged constitutional violations, particularly for small businesses.
Yesterday, the court granted the preliminary injunction, effectively halting the nationwide enforcement of the CTA. The court concluded that the plaintiffs would suffer irreparable harm from unrecoverable compliance costs and potential constitutional infringements. It determined that the harm caused by the CTA outweighed the inconvenience to the government of delaying its enforcement, particularly when protecting constitutional rights serves the public interest. The court also found that the plaintiffs’ legal challenge is likely to succeed on the merits.
While this injunction does provide immediate relief with the filing obligation deadline looming, this could just be a temporary stay on filing. Once the case is resolved, a filing could still be necessary in the future.
If you have any questions about this recent development and how it may impact your business, we strongly encourage you to consult with your legal counsel.