Injunction Whack-a-Mole: An Update on the Corporate Transparency Act

By: Brian Isztwan, Class of 2027

Background & Updates Since Passage

The Corporate Transparency Act (CTA)[1] was passed by Congress in 2021 as a part of the National Defense Authorization Act for Fiscal Year 2021, despite a veto from President Trump.[2]  The purpose of the CTA was to “curb illicit finance”[3], allowing the Financial Crimes Enforcement Network (FinCEN), a federal agency under the U.S. Department of the Treasury, to have access to information that would help it target money laundering, terrorism, and other financial crimes.[4]  The CTA requires all corporations, LLCs, and any other entities “created by the filing of a document with a secretary of state or similar office under the law of a State or Indian Tribe” to report identifying information about its “beneficial owners.”[5]  Beneficial owners, within the language of the CTA, are any entities or individuals who exercise substantial control over the company or own more than 25% of the company’s interests.[6] 

While the CTA purports to help the government catch illegal financial activity, many have argued that the CTA places an undue burden on small private businesses and is unconstitutional.[7]  Prior to the CTA, the burden of collecting information on the beneficial owners of companies fell on financial institutions.[8]  Now, companies will shoulder this burden themselves while allowing the federal government access to information that was previously kept anonymous by state government corporate formation procedures.[9]  The CTA took effect on January 1, 2024, but its enforcement has been delayed by significant litigation.  Multiple injunctions have been imposed and stayed by federal courts through the end of 2024, and it appears that pushback against the CTA will not soon subside.[10]

Courts Divided on CTA Course of Action

On January 23, 2025, the U.S. Supreme Court in McHenry v. Texas Top Cop Shop, Inc. granted a temporary stay on an injunction awarded by a federal district court in the Eastern District of Texas.[11]  However, just a few weeks earlier in Smith v. Department of the Treasury, a different judge in the Eastern District of Texas enjoined the Reporting Rules (the detailed requirements for filing under the act) of the CTA with a nationwide order.[12]  This order keeps the enforcement of CTA filing requirements on hold.[13]  According to an alert published by FinCEN in response to Smith, companies are not currently liable for failure to report in accordance with the CTA.[14]  It is unclear whether the Department of Justice will file an appeal or a stay on this injunction, but the outcome of the case and the fate of the CTA generally may be influenced by the new administration’s views on the issue.[15]

Looking Forward

The Trump administration is yet to make its position explicit on the enforcement of the CTA.[16]  However, there are several indications that will buoy opposers of the CTA.[17]  Project 2025 calls for a repeal of the CTA, and multiple senators have introduced bills to this end.[18]  Furthermore, President Trump issued an executive order titled “Regulatory Freeze Pending Review” that orders all departments and agencies to refrain from introducing any new rules until a department or agency head has been appointed by the President.[19]  Under this order, a “rule” includes any regulatory action or guidance document.[20]  It is unclear whether this executive order prohibits FinCEN from issuing new filing dates in accordance with the new injunction described above, so the current state of the Reporting Rules of the CTA is still up in the air.[21]  While FinCEN has acknowledged that there are no currently enforceable deadlines, no guidance has been circulated about future plans for CTA filing.[22]  This lack of direction leaves many private companies vulnerable to the volatile implications of the CTA and current politics.[23]  Leading law firms are thus advising their clients to remain vigilant and prepare for the rules to take effect, avoiding an unwelcome surprise if current trends reverse.[24]

[1] 31 U.S.C. § 5336.

[2] Robert Downes, Scott Ludwig, Thomas Rutledge, & Lorraine Smiley, The Corporate Transparency Act – Preparing for the Federal Database of Beneficial Ownership Information, American Bar Association (Apr. 16, 2021), https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/.

[3] U.S. Beneficial Ownership Information Registry Now Accepting Reports, Financial Crimes Enforcement Network (Jan. 1, 2024), https://www.fincen.gov/news/news-releases/us-beneficial-ownership-information-registry-now-accepting-reports.

[4] Mengqi Sun, Corporate Transparency Act Still Blocked Despite Supreme Court Decision, Wall Street Journal (Jan. 24, 2025, 3:28 PM), https://www.wsj.com/articles/corporate-transparency-act-still-blocked-despite-supreme-court-decision-5427b7ac.

[5] 31 U.S.C. § 5336(a)(11)(A)(i).

[6] 31 U.S.C. § 5336(a)(3)(A).

[7] The Editorial Board, Repeal the Corporate Transparency Act, Wall Street Journal (Dec. 14, 2024, 5:38 PM), https://www.wsj.com/opinion/corporate-transparency-act-judge-amos-mazzant-small-business-donald-trump-df6162f0?mod=opinion_lead_pos4.

[8] Downes, supra note 2.

[9] Id.; The Editorial Board, supra note 7.

[10] Jeffrey Dinerstein, William Peterson, James Preston, Jie Shan, & Carl Valenstein, CTA Still On Hold: US Supreme Court Lifts One Injunction, But Another Remains, Morgan, Lewis & Bockius LLP (Jan. 27, 2025), https://www.morganlewis.com/pubs/2025/01/cta-still-on-hold-us-supreme-court-lifts-one-injunction-but-another-remains.

[11] McHenry v. Texas Top Cop Shop, Inc., No. 24A653, 2025 WL 272062, at *1 (Jan. 23, 2025).

[12] Smith v. U.S. Department of the Treasury, No. 6:24-cv-336-JDK, 2025 WL 41924, at *14 (E.D. Tex. Jan. 7, 2025).

[13] Sun, supra note 4.

[14] Id.

[15] Dinerstein, supra note 10.

[16] Id.

[17] Christina Houston, Robert Keatinge, Thomas Rutledge, & James Wheaton, The Corporate Transparency Act Is Still on Pause, but Less So, American Bar Association (Feb. 7, 2025), https://www.americanbar.org/groups/business_law/resources/business-law-today/2025-february/corporate-transparency-act-still-on-pause-but-less-so/.

[18] Id.

[19] 90 FR 8249.

[20] Id.

[21] Houston, supra note 17.

[22] Id.

[23] Id.

[24] Dinerstein, supra note 10.