Corporate Transparency Act Reporting Obligations Restored with Extensions

On December 23, 2024, the United States Court of Appeals for the Fifth Circuit issued an unpublished order to challenge the constitutionality of the Corporate Transparency Act (CTA), a money laundering legislation, requiring several companies to disclose the identities of their beneficial owners & applicants for incorporation under 31 U.S.C. 5336.

The order grants the government a request for a temporary stay of a nationwide injunction against the act that allows the government to continue enforcing its provision while the legal challenge proceeds.

On 3 December 2024, the district court issued a temporary nationwide order stopping certain business transactions & the requirement to report them within just weeks before the deadline, which is January 1, 2025. This follows a request from businesses challenging the regulations 31 C.F.R. 1010.380.

The court also paused an injunction that will stop the law enforcement, as its reporting requirements will be effective until there is another intervention during next week.

A 2011 World Bank report found that the U.S. is not implementing proper due diligence practices in newly formed corporate entities. This spurred the passage of the Corporate Transparency Act (CTA) to curb financial crime and requires businesses to disclose beneficial owners.

However, the law is facing opposition from businesses and the banking sector, who argue it burdens small businesses & can be unconstitutional.

The government filed an emergency motion with the court and sought a stay of the district court’s order and injunction. Further, the court granted the motion and cited the precedent established in Nken v. Holder, 556 U.S. 418 (2009).

In reply to the Fifth Circuit’s decision, FinCEN acknowledged that reporting entities may require more time to comply with CTA reporting responsibilities while the injunction was in place. In an alert2 released on the FinCEN website, FinCEN extended the deadlines for reporting entities to file their initial beneficial ownership information reports with FinCEN as follows:

• Reporting firms established or registered before January 1, 2024: revised reporting deadline of January 13, 2025 (would otherwise have had to report by January 1, 2025).
• Reporting firms formed or registered in the United States on or after September 4, 2024, with a filing due between December 3, 2024, and December 23, 2024: revised reporting deadline of January 13, 2025.
• Reporting firms formed or registered in the United States on or after December 3, 2024, but before December 23, 2024, will have their reporting date extended by an extra 21 days from their initial filing deadline.
• Reporting companies founded or registered in the United States on or after January 1, 2025, must report within 30 days of obtaining real or public notification that their creation or registration is effective.

Additionally, reporting organizations that qualify for disaster relief may have longer deadlines after January 13, 2025.

As a result of the continuing litigation, reporting entities should continue to monitor for new updates or instructions from FinCEN, as well as any superseding court orders.

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According to a Press Release, this decision halts the implementation of the district’s court order pending appeal.

The government also emphasized the urgency of protecting national security & combating financial crime.

They also argue that nationwide injunction will hinder efforts to pressure other countries to strengthen their AML measures & address crucial gaps identified in the U.S. regulatory regime.

The court ultimately agreed with the government’s arguments and granted the stay.