SCOTUS reinstates CTA: BOI Reporting Mandate Back On For Businesses
Supreme Court Grants Stay Requested by Biden DOJ, Putting Small Businesses Back on the Hook
By Richard Luthmann
The U.S. Supreme Court has reinstated the Corporate Transparency Act (CTA), reversing a prior Fifth Circuit ruling that temporarily blocked its enforcement. This pivotal decision allows the Financial Crimes Enforcement Network (FinCEN) to resume implementing its controversial Beneficial Ownership Information Reporting (BOIR) requirements.
The CTA, originally passed to combat money laundering and financial crime, mandates that corporations, LLCs, and other reporting entities disclose detailed ownership and control information to FinCEN. While supporters view the law as an essential tool for national security, critics argue it imposes onerous compliance burdens on small businesses.
Before the Inauguration, the Biden Administration’s Department of Justice requested SCOTUS remove the injunction and reinstate the BOIR requirements. Last month, the Fifth Circuit issued a stay, providing temporary relief to business owners.
SCOTUS Reinstates CTA: The Nuts and Bolts
Joseph Lynyak, a prominent banking attorney at Dorsey & Whitney, explained the significance of the Supreme Court’s ruling. He noted that the decision permits FinCEN to reinstate its reporting company requirements, providing the government with critical tools to prevent illicit financial activities.
“The Court granted the Government’s motion for a stay against the ruling from the Fifth Circuit enjoining enforcement of compliance with the requirements of the CTA. This means that the lawsuit filed in the Fifth Circuit will now proceed in normal order. The Court also invited the filing of a certiorari petition upon completion of that case,” Lynyak said.
Two key principles underpin the Court’s decision. First, the constitutionality of a duly enacted law is entitled to significant deference when an emergency order is before the Court. Lynyak emphasized that a high burden must be met to overturn such a law without full litigation. Second, the need for corporate entities to disclose ownership and control information is subordinated to the broader goal of addressing U.S. national security concerns.
“From a balancing perspective,” Lynyak said, “the disclosure of ownership and control information by a corporate entity should be subordinated to valid U.S. national security needs to prevent money laundering and similar criminal activity.”
This ruling also has immediate implications for millions of previously uncertain businesses about their compliance obligations. FinCEN is now expected to issue revised deadlines for filing beneficial ownership information. The original deadline, set for January 1, 2025, was thrown into chaos by the Fifth Circuit’s earlier injunction. Lynyak indicated that FinCEN will likely announce updated filing timelines in the coming days, stating, “Of immediate importance will be the amended time frame issued by FinCEN for millions of covered corporate entities to make an initial filing.”
SCOTUS Reinstates CTA: But It’s Not Over Yet
Despite the Supreme Court’s decision, the Fifth Circuit has yet to resolve the full lawsuit challenging the CTA. The plaintiffs argue that the law infringes on constitutional rights and disproportionately burdens smaller businesses. Lynyak acknowledged this ongoing legal uncertainty but underscored the government’s advantage in this stage of the litigation.
“Although the plaintiffs in the Fifth Circuit case may ultimately prevail, the Government’s position was supported by two significant principles that weighed heavily in this emergency ruling,” he said.
Justice Neil Gorsuch issued a separate statement highlighting broader legal concerns stemming from this case, particularly the issue of nationwide injunctions. Gorsuch suggested that the Supreme Court provide guidance to lower courts on the propriety of issuing such broad rulings. His comments align with criticism from both conservative and liberal legal scholars, who argue that nationwide injunctions can be disruptive and constitutionally problematic.
The road ahead for the CTA remains fraught with legal challenges, but the Supreme Court’s decision to reinstate the law marks a significant victory for federal regulators. Businesses must now prepare to comply with the CTA’s requirements as FinCEN moves to reset compliance deadlines. However, the unresolved Fifth Circuit lawsuit opens the possibility of further legal developments that could ultimately return this contentious issue to the Supreme Court.
As Justice Gorsuch suggested, this case’s implications may extend beyond the CTA itself, shaping future jurisprudence on nationwide injunctions and the limits of federal authority.
For now, SCOTUS has reinstated CTA, and FinCEN will enforce it. The spotlight remains firmly fixed on the legal battles ahead.
What about Smith & Means vs. US Treasury? (https://law.justia.com/cases/federal/district-courts/texas/txedce/6:2024cv00336/232897/30/)
"Regarding the Reporting Rule, Plaintiffs have moved for a stay pending review under 5 U.S.C. § 705. Docket No. 14 at 20. The Administrative Procedure Act authorizes a reviewing court to “issue all necessary and appropriate process to postpone the effective date of an agency action or to preserve the status or rights pending conclusion of the review proceedings.” 5 U.S.C. § 705. “And ‘nothing in the text of Section 705, nor of Section 706, suggests that either preliminary or ultimate relief under the APA needs to be limited’ to the parties before the Court.” Texas v. Becerra, 2024 WL 4490621, at *1 (E.D. Tex. Aug. 30, 2024) (cleaned up) (quoting Career Colls. & Schs. of Tex. v. Dep’t of Educ., 98 F.4th 220, 255 (5th Cir. 2024)). Instead, “the scope of preliminary relief under Section 705 aligns with the scope of ultimate relief under Section 706, which is not party-restricted and allows a court to ‘set aside’ an unlawful agency action.” Career Colls., 98 F.4th at 255; see also id.(“When a reviewing court determines that agency regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioners is proscribed.” (quoting Harmon v. Thornburgh, 878 F.2d 484, 495 n.21 (D.C. Cir. 1989))). Accordingly, the Court STAYS the effective date of the Reporting Rule (31 C.F.R. § 1010.380) while this lawsuit is pending. See id.; 5 U.S.C. § 705;see also All. forHippocratic Med., 78 F.4th at 254 (affirming a stay under § 705 because “a stay is the temporary form of vacatur” under § 706).
"
/s/ Jeremy D. Kernodle, January 7, 2025