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CTA compliance remains optional despite Supreme Court ruling

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Banking
Tuesday, February 4, 2025

An injunction filed in a Texas district court is looming over the Corporate Transparency Act (CTA) despite the Supreme Court’s decision overturning a substantially similar injunction in January. As a result, compliance with the CTA will remain optional until further notice.

Despite the higher court’s decision to overturn an injunction questioning the legality of the CTA’s beneficial ownership information (BOI) reporting requirements, the other injunction remains in place, according to U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).

“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,” according to a notice on the FinCEN website. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”

The now-lifted nationwide injunction was handed down in December by a lower court judge in Texas Top Cop Shop, Inc., et al. V. Merrick Garland. The injunction that currently remains in place was issued by Judge Jeremy Kernodle of the Eastern District of Texas on Jan. 7, in Smith v. U.S. Department of the Treasury.

“A separate nationwide preliminary injunction issued by a different district court in Texas remains in place for now. Accordingly, Treasury’s FinCEN is treating reporting under the CTA as voluntary, for the time being,” confirmed Zorka Milin, policy director with the FACT Coalition. “However, because that lower court injunction is at odds with the Supreme Court’s stay order, the Department of Justice should seek and win a stay against that injunction, too.”

Originally passed into law during the first Trump administration, the CTA was intended to crack down on anonymous shell companies by requiring certain legal entities to provide and register BOI. Despite the legal challenges the CTA has faced in recent months, the act has been widely praised as a crucial tool against money laundering, shell company fraud and other forms of financial malpractice.

As the remaining injunction continues to hamstring the CTA, proponents of the landmark act likewise continue to argue in its favor.

“Nearly 85 percent 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,” said Scott Greytak, director of advocacy for Transparency International US. “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,” FACT Coalition Executive Director Ian Gary added. “(The Jan. 23) 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.”

“Foreign adversaries and criminals move billions through our economy using opaque shell corporations, propping up kleptocratic regimes, enabling drug cartels, and undermining democracy,” said Elaine Dezenski, senior director and head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies. “While we spend trillions on our military capability, we leave the front door open to the illicit finance that emboldens and enriches our adversaries. The CTA closes this major security vulnerability.”

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