The Supreme Court lifted an injunction on the Corporate Transparency Act and its beneficial ownership information reporting requirement that had been imposed by a federal appeals court, but CTA enforcement nevertheless remains on hold because of a separate nationwide injunction.
The lower courts will continue to hear arguments over the law, which requires companies to file reports on their true owners to the Treasury Department's Financial Crimes Enforcement Network as a way to deter illicit activity such as money laundering, tax fraud, drug trafficking and terrorism financing by shell companies. New businesses were required to start filing the beneficial ownership information reports with FinCEN last year and existing ones to file the BOI reports starting Jan. 1 of this year. But a
The Supreme Court
Even the Supreme Court justices seemed divided. Concurring with the grant of the stay, Justice Neil Gorsuch wrote, "I agree with the Court that the government is entitled to a stay of the district court's universal injunction. I would, however, go a step further and, as the government suggests, take this case now to resolve definitively the question whether a district court may issue universal injunctive relief."
Justice Ketanji Brown Jackson believes it's too soon for the Supreme Court to step in, and she dissented from the grant of the stay. "However likely the Government's success on the merits may be, in my view, emergency relief is not appropriate because the applicant has failed to demonstrate sufficient exigency to justify our intervention," she wrote. "I see no need for this Court to step in now for at least two reasons. First, the Fifth Circuit has expedited its consideration of the Government's appeal. Second, the Government deferred implementation on its own accord—setting an enforcement date of nearly four years after Congress enacted the law—despite the fact that the harms it now says warrant our involvement were likely to occur during that period. The Government has provided no indication that injury of a more serious or significant nature would result if the Act's implementation is further delayed while the litigation proceeds in the lower courts. I would therefore deny the application and permit the appellate process to run its course."
It's unclear at this point how the appeals court will rule, and FinCEN has not yet updated its guidance.
"The Supreme Court turned the CTA back 'on,' lifting the stay and allowing enforcement," said Leila Carney, a member of the law firm Caplin & Drysdale. "The Supreme Court may simply be tossing the ball back to the agency. With the administration change and an incoming U.S. Treasury nominee, Mr. Bessent, FINCEN itself could pump the brakes on enforcement. The agency suffers little harm by delaying (as Justice Jackson pointed out), while filers can't un-file. Unfortunately, taxpayers are back where they started—on edge and awaiting guidance, but they should remain prepared to file to avoid penalties."
The National Federation of Independent Business, which was behind the lawsuit in the Texas Top Cop Shop case, issued a statement on Thursday in reaction to the Supreme Court move.
"Today's decision is a setback for small business," said Beth Milito, vice president and executive director of NFIB's Small Business Legal Center, in a statement. "Hopefully, Treasury recognizes the chaos that will ensue by requiring 32 million small businesses to imminently file their BOI information while the constitutionality of the reporting requirements is determined. As the next steps become clear, NFIB will inform small businesses on how to proceed."
Corporate transparency advocates were heartened by the Supreme Court order, "The resumption of enforcement of the CTA is a blow to fentanyl dealers, human traffickers, terrorists, corrupt foreign leaders and other criminals that use anonymous companies to launder the proceeds of their illegal activities," said Scott Greytak, director of advocacy for Transparency International US, in a statement. "Nearly 85% of all countries in the world have committed to collecting beneficial ownership information to protect against abuse of their financial systems. It is astonishing that the plaintiffs in this case believe the United States isn't capable of doing the same. The order from the Supreme Court to stay this injunction should serve as a clear sign to the other courts currently weighing misguided challenges to the CTA that the law is constitutional."
"For years, police and prosecutors have tried to combat a flood of dirty money associated with often violent crimes, but that can't happen if they run into a wall of shell companies and secrecy," said Ian Gary, executive director of the FACT (Financial Accountability and Corporate Transparency) Coalition, in a statement. "Today's order is a reminder of the urgency of opening the money trail so our law enforcement officials can crack down on criminals who abuse the system."
The on again, off again nature of the CTA hasn't been resolved yet, and may remain on hold due to the other court case. The Texas Public Policy Foundation said the CTA would remain stayed because the stay it secured in the Eastern District of Texas earlier this month is still in effect nationwide.
"The CTA, part of the National Defense Authorization Act for FY 2021, imposes burdensome reporting requirements on small businesses," said the group. "TPPF argues the Act exceeds Congress's power under the Commerce Clause. As the judge who issued the order emphasized, TPPF's case is based on different facts and arguments from the one in front of the Supreme Court. It is not affected by the Supreme Court's order."
Companies can continue to voluntarily file beneficial ownership information reports with FinCEN, but they won't be subject to liability for failing to file while the injunction remains in effect.
