Corporate Transparency Act Reinstated by Fifth Circuit Court of Appeals

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A prior post, Corporate Transparency Act Blocked Nationwide by Texas Federal Court, reported that on December 3, Judge Amos L. Mazzant III of the U.S. District Court for the Eastern District of Texas issued a preliminary nationwide injunction against the Corporate Transparency Act (CTA). The post also advised staying informed, as the compliance deadline of December 31 could be reinstated.

Today, December 23, the Fifth Circuit Court of Appeals reinstated the CTA, which mandates businesses disclose their beneficial owners to combat financial crimes. The government successfully argued that the law is constitutional and vital for national security. In its decision, the court found minimal harm to businesses from compliance and emphasized the significant public interest in enforcing the law, granting a stay while an expedited appeal proceeds.  

Key Issues and Ruling

Constitutionality of the CTA

  • The government argued the CTA is constitutional under Congress’s authority to regulate interstate commerce.
  • The Fifth Circuit agreed, finding that the CTA targets economic activities substantially affecting commerce.
  • The plaintiffs failed to demonstrate that the CTA is unconstitutional in all applications, a requirement for a successful challenge.

Emergency Stay Factors

The court applied these factors to evaluate whether to grant a stay:

  • Likelihood of Success on the Merits: The government presented strong arguments supporting the CTA’s validity under the Commerce Clause.
  • Irreparable Harm: Delaying implementation of the CTA undermines anti-money laundering efforts and poses national security risks.
  • Balance of Harms: The court found that the compliance burden for businesses—estimated at 90 minutes and $85 per report—was minimal compared to the significant public interest in combating financial crime.
  • Public Interest: Enforcing the CTA aligns U.S. financial regulations with global standards and strengthens efforts to prevent financial crimes.

Outcome

The Fifth Circuit granted the government’s motion for a stay pending appeal and expedited the case for further proceedings. As a result, the CTA remains enforceable, and businesses should prepare to comply with its reporting requirements.

NOTE: In the few hours since the decision, FinCEN has announced new filing date requirements. Companies that were created or registered before January 1, 2024, must file their initial beneficial ownership information reports with FinCEN by January 13, 2025. (Without this extension, the original deadline would have been January 1, 2025.) Other deadlines can be found at https://fincen.gov/boi.

The case will likely be appealed further. However, if you wish to read about the ruling, the full case can be read at Texas Top Cop Shop, Inc. v. Garland.

As this or similar cases develop, we’ll update the information on our blogs.

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