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Corporate Transparency Act Enforcement Still On Pause

Corporate Transparency Act Enforcement Still On Pause

There was a flurry of activity at the end of last week around whether reporting companies, including many ILMA member companies, are required to file beneficial ownership reports under the Corporate Transparency Act (CTA) with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). On January 24, FinCEN issued updated guidance announcing that enforcement of the CTA’s beneficial ownership reporting requirements remains on hold, despite a ruling the day before by the U.S. Supreme Court that stayed a nationwide injunction. FinCEN’s guidance recognizes a second injunction, which FinCEN interprets as applying nationwide.

Based on FinCEN’s latest guidance, reporting companies are not currently obligated to file beneficial ownership information. However, reporting companies have the option to voluntarily submit beneficial ownership information reports to FinCEN if they choose.

For businesses, including ILMA member companies, the temporary reprieve from compliance with the CTA’s beneficial ownership reporting requirements is a welcome development. However, it is important to follow state-level actions. Even if the CTA eventually is ruled unconstitutional, a number of states (New York, South Dakota and the District of Columbia) have adopted, or are considering adopting, their own corporate transparency acts, which in many ways mimic the CTA.

Background on the CTA

Enacted in 2021 as part of the annual defense bill, the CTA would require millions of small business owners to report beneficial ownership information, including personal information like dates of birth and addresses, to FinCEN, which seeks to combat money laundering and other crimes.

On January 23, the U.S. Supreme Court granted the government’s request to stay the nationwide injunction issued by a federal judge in Texas in Texas Top Cop Shop, Inc. v. McHenry.  Under the court’s decision, FinCEN could potentially enforce the beneficial ownership requirements of the CTA unless further legal decisions intervened.

FinCEN decided to keep its beneficial ownership reporting requirements under the CTA on hold because of a separate injunction issued by another federal judge in Texas in Smith v. U.S. Department of the Treasury.

Litigation in the Texas Top Cop Shop case continues. A three-judge panel at the Fifth Circuit Court of Appeals will hear oral arguments on the constitutionality of the CTA on March 25. It is unclear whether the new administration will continue to pursue the government’s appeal of the lower court’s decision. Ultimately, the Supreme Court may have to make a ruling.

Read ILMA’s original story on this topic.