FinCEN Response to CTA Nationwide Preliminary Injunction
BOIR Deadlines Stayed/FinCEN Enjoined from Enforcement
By David H. Freedman and Jordan M. Small
On Wednesday, December 4, 2024, Maddin Hauser provided an alert regarding an order entered by the Eastern District of Texas which temporarily enjoined enforcement of the Corporate Transparency Act (CTA) and stayed its upcoming compliance deadlines.
At the time of the article, the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) had not issued a response. FinCEN has now issued guidance on the filing of Beneficial Ownership Information Reports (BOIR) under the CTA and provided the following alert:
“Alert: Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only
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. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.
On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.
Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Considering this FinCEN alert, all work relating to the BOIR filings and related CTA compliance efforts may be paused for now subject to further court or legislative developments. In the event that the Fifth Circuit Court of Appeals (the Department of Justice appealed the ruling on December 5, 2024 by filing a Notice of Appeal) stays the preliminary injunction or dissolves/reverses the injunction, or upon further order of the Texas Federal Court, which causes the resumption of the BOIR filings, it is likely that all non-exempt reporting companies that have not yet filed their BOIR will have at least the amount of time that the preliminary injunction is in effect to file the BOIR. If the BOIR filings are no longer on “hold”, all information/documentation to make the BOIR filings will be needed (and potentially on short notice as the new filing deadlines would have to be disclosed by FinCEN at that time). Reporting companies that are concerned about the imposition of new deadlines and do not want to worry about ramping up compliance on short notice can always file voluntarily despite the current injunction.
We will continue to follow these developments and provide further updates as they are available on our CTA blog and other social media.