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Injunction lifted Fifth Circuit Court of Appeals grants a stay of the preliminary nationwide injunction of the Corporate Transparency Act

12/26/24

By: Nancy Reimer

On December 23, 2024 the U.S. Court of Appeals for the Fifth Circuit lifted the temporary injunction issued by the Eastern District of Texas Federal Court reinstating the requirement to file the Beneficial Ownership Interest (“BOI”) form with the Financial Crimes Enforcement Network (“FinCen”). FinCen has extended the filing date for those companies formed before January 1, 2024 until January 13, 2025.

As previously reported in our client alert dated December 9th, the United States District Court for the Eastern District of Texas issued a nationwide injunction over the enforcement of the Corporate Transparency Act (“CTA”) in advance of its upcoming mandatory filing deadline of January 1, 2025. In turn, FinCEN issued an alert stating it would comply with this order so long as it remains in effect.

In lifting the preliminary injunction, the Fifth Circuit found the government made a strong showing that it is likely to succeed on the merits in defending the CTA’s constitutionality. When Congress passed the CTA in 2021, it used its “broad authority under the Commerce Clause” to regulate economic activity. The CTA requires certain corporate entities to report their beneficial ownership interest in order to target illicit financial activity. In doing so, it regulates anonymous ownership and operation of businesses. Those “are part of an economic class of activities that have a substantial effect on interstate commerce. Thus, a reporting requirement for entities engaged in these economic activities falls within “more than a century of [the Supreme] Court’s Commerce Clause jurisprudence.” See Texas Top Cop Shop, Incorporated et al ; No. 24-40792 U.S. Court of Appeals, 5th Cir. (December 23, 2024)

The Fifth Circuit further found the CTA regulates the ownership and operation of businesses by imposing modest disclosure requirements to facilitate a regulatory scheme aimed at combatting financial crimes. Because Congress only needs a “rational basis” to conclude that a regulated activity “substantially affects interstate commerce,” enacting the CTA was within its commerce power. See id.

This Order stays the initial preliminary injunction and is not a final ruling on the CTA’s constitutionality. The Fifth Circuit’s Order directed the appeal in this lawsuit be expedited to the next available oral argument panel. In the meantime, FinCen has extended the filing dates of the BOI forms as follows: those companies created or registered before January 1, 2024 have until January 13,2025; those created or registered in the United States on or after September 4, 2024, now have until January 13, 2025; those companies created or registered in the United States on or after December 3, 2024, and on or before December 23, 2024, have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN. Companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025.”

We will continue to follow and report developments concerning the CTA to you.

For more information on this topic, please contact Nancy Reimer at nancy.reimer@fmglaw.com or your local FMG relationship partner.