United States: Court Moves Leave CTA Enforcement Up In The Air

Mark High recently authored an article that was published in Corporate Compliance Insights, "Court Moves Leave CTA Enforcement Up in the Air." The article discusses the FinCEN appeal of a federal court ruling in Alabama that struck down the CTA as unconstitutional. Mark says, "Unstated but apparent was that FinCEN believes the CTA remains in effect for everyone else. The next day, the association in a news release urged FinCEN to suspend enforcement for all organizations under the CTA." To read more, click here.

***

By now, you are probably familiar with the Corporate Transparency Act (CTA), as this publication and others have covered the topic extensively. The CTA, effective Jan. 1, 2024, is aimed at combating international money laundering and requires millions of companies to report information about their beneficial owners — those who ultimately own or control a company — to FinCEN, which is part of the U.S. Department of the Treasury.

This month, however, developments have disrupted what was already looking to be a challenging process. First, on March 1, a U.S. District Court in Alabama issued an opinion that the CTA is unconstitutional, concluding that the law "exceeds the Constitution's limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress' policy goals ..." That court's order "permanently" enjoined enforcing the CTA against only the plaintiffs in that case.

Then, on March 4, FinCEN issued a notice stating that it would not "currently" enforce the CTA against National Small Business United, plaintiffs in that case, as well as organization members existing as of March 1. Unstated but apparent was that FinCEN believes the CTA remains in effect for everyone else. The next day, the association in a news release urged FinCEN to suspend enforcement for all organizations under the CTA.

Some had speculated that FinCEN might accept the Alabama court's ruling, narrowly tailored as it was, and move on. That possibility was put to rest on March 11, when FinCEN filed a notice of appeal with the 11th Circuit Court of Appeals. That leaves the CTA's validity up in the air at least into the early summer, and any subsequent appeal to the U.S. Supreme Court would further extend the uncertainty. Still to be determined is whether any copycat suits challenging the CTA will appear.

For now, companies should continue to monitor this topic. Entities existing before Dec. 31, 2023, with their filing deadline currently set at Dec. 31, 2024, may stand back for a couple of months and see what develops. The CTA's initial 90-day filing deadline for companies formed in 2024, however, is approaching, with any companies formed Jan. 1, 2024, having a deadline at the end of March. There are severe penalties possible for non-compliant companies, so those formed this year by anyone other than covered members of the Alabama plaintiffs should continue to observe that 90-day deadline.

Originally published in Corporate Compliance Insights

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.