A federal district court judge in Texas on December 3, 2024, imposed a preliminary injunction on Congress’ efforts to fight international money laundering and terrorist financing. The judge ordered the Department of the Treasury not to enforce the Corporate Transparency Act (the “CTA”) adopted in 2021.
The rules adopted a year ago required more than 30 million U.S. companies to report ownership and control information to the Treasury’s Financial Crimes Enforcement Network, known as FinCEN. Under the regulations, electronically filed reports are due by the end of 2024 for companies formed before 2024 and within 90 days after formation for companies formed in 2024.
Some companies and their owners have found the reporting obligation unduly intrusive and burdensome, and there are pending in various jurisdictions several suits in which courts have rejected challenges to the CTA’s reporting obligations or created limited injunctions.
Judge Amos L Mazzant of the Eastern District of Texas imposed the new injunction, which purports to limit FinCEN’s CTA enforcement nationwide.
The injunction enjoins FinCEN. The injunction does not require or forbid filing by entities, known as “reporting companies,” that in general have reporting obligations under the CTA.
The government immediately appealed the decision. No one knows how long the injunction will remain in effect or how long the injunction will be deemed “preliminary” or whether the court will declare it to be “permanent.”
FinCEN’s acknowledgement of the injunction said that reporting companies may continue to file and provide changed information “while the preliminary injunction remains in effect.” There can be no assurance that when or if the injunction is lifted, FinCen will allow a grace period for compliance. Potential penalties under the statute include a financial penalty of up to $500 a day.
The government has defended the statute in this matter and others on the grounds that Congress has power to regulate interstate commerce and has power to tax. Judge Mazzant’s opinion interprets the “interstate commerce” idea quite narrowly, and other judges have made different determinations.
For now, we encourage you to speak with your Connell Foley lawyers to determine whether your entity qualifies as a reporting company under the statute and—if it does—whether you wish to comply before the end of the year. While the injunction might be in place for months or years to come, there can be no assurance that, if your reporting company does not comply by the end of this year, there will never be a penalty.
Of CounselA transactional lawyer working closely with business clients, Noel Humphreys actively participates in the ins and outs of business organizations. He focuses his practice on business transactions, lending transactions ...