New Law Requiring Businesses to Report Who Owns Them Is Put on Hold Again
An appeals court restores an injunction on the Corporate Transparency Act, which aims to unmask shell companies but is seen as onerous by business groups
The implementation of the Corporate Transparency Act—a law aimed at getting shell companies to disclose their true ownership—was paused again just days before a reporting deadline was set to take effect, as a federal appeals court handed the case to a panel for further consideration.
In a court filing late Thursday, the Fifth Circuit Court of Appeals vacated a stay on a national injunction the court had issued Monday that reinstated the Jan. 1 reporting deadline for millions of companies. The lifting of the stay means the January filing deadline will be postponed once again and bars the government and the Treasury Department from enforcing the law, pending oral arguments before the court’s so-called merits panel, a group of judges tasked with considering appeals.
The Corporate Transparency Act, a bipartisan law passed in 2021 to curtail the use of anonymous shell companies and help track flows of illicit money, would require companies to file beneficial ownership information with the Treasury’s Financial Crimes Enforcement Network or face the possibility of penalties such as fines and jail time. The law could cover more than 32 million small businesses nationwide.
Though backed by anticorruption groups, the law has been criticized by small-business owners and associations as onerous and even invasive, and has been challenged in multiple court cases across the country.
In one of them, Texas District Judge Amos Mazzant on Dec. 3 issued a temporary national injunction, ruling that he needed to fully consider the merits of both sides. But his ruling also made clear that he believed the law is likely unconstitutional. Lawyers for the Treasury Department filed an expedited appeal and an emergency motion to stay the injunction that same week.
On Monday, the federal appeals court judges sided with the Treasury Department, saying, “The government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality.” The court order also expedited the appeal to the next available oral argument panel.
Within hours of the stay on Monday, FinCEN said it would give businesses additional time to file, extending the deadline to Jan. 13 for many companies.
In a rapid turn of events, the appeals court said Thursday that its merits panel is reviewing the expedited appeal and is lifting the stay of the injunction to “preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.”
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force,” FinCEN said Friday. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
On Monday, the agency said it continues “to believe that the law is constitutional and will continue to pursue an appeal.”
The latest reversal “practically throws compliance by covered corporate entities into chaos,” according to Joseph Lynyak, a banking attorney at Dorsey & Whitney.
“The CTA is not well understood by the business community, and there are now both domestic and reporting companies that may now be completely confused in regard to their respective CTA obligations,” he said.