Federal Injunction Blocks Enforcement Nationwide of the Corporate Transparency Act

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting the enforcement of the Corporate Transparency Act (CTA), and effectively pausing its January 1, 2025, compliance deadline.

The Corporate Transparency Act required businesses to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) as part of anti-money laundering and anti-terrorism efforts.

The decision - Texas Top Cop Shop, Inc. v. Garland et al.- raised constitutional questions about federal overreach and the financial burdens placed on small businesses by the CTA. Judge Amos L. Mazzant III granted the injunction, emphasizing the act’s potential violation of federalism principles and the Commerce Clause. The opinion makes the point that corporate regulation is traditionally under state jurisdiction. The CTA’s federal oversight would have disrupted this balance, pushing the boundaries of Congress’s authority under the Commerce Clause. Additionally, the judge relied upon First Amendment protections and Fourth Amendment privacy rights.

The ruling halts enforcement of the CTA across the country. So, for now, businesses are not required to comply with the CTA’s reporting requirements. However, if the Department of Justice (DOJ) appeals, the litigation could extend to higher courts. Keep apprised of recent developments in this area in the event reporting obligations change.