On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc. et al. v. Garland enjoining reporting and enforcement under the Corporate Transparency Act (CTA). This decision temporarily bars implementation of the CTA and corresponding Reporting Rule across the United States.
As discussed in our November 8, 2023, article, the CTA was enacted to improve corporate transparency while combatting money laundering and other financial crimes. The Texas court’s decision on Tuesday found that the CTA is likely unconstitutional because it exceeds Congressional powers granted under the Commerce Clause and the Necessary and Proper Clause. The resulting injunction prevents the Financial Crimes Enforcement Network (FinCEN) from enforcing parts of the CTA that would require United States entities to disclose their beneficial owners to federal authorities.
Despite this ruling, future enforcement of the CTA remains unclear. The possibility of an appeal of the Texas court’s decision and the entrance of a new administration in January 2025 will have an impact on the fate of the CTA. Due to the significant penalties for non-compliance (fines of up to $500 per day of non-compliance and/or imprisonment for up to two years), it remains important for businesses to be prepared to comply with the CTA. Out of an abundance of caution, businesses may still want to submit their Beneficial Ownership Information (BOI) Report by January 1, 2025.
We will continue to monitor developments in the enforcement of the CTA and provide timely updates to our clients. If you have any immediate questions or concerns regarding this alert, please contact Eaton Peabody attorney Caitlin Carroll at (207) 947-0111 or ccarroll@eatonpeabody.com.