FinCEN fights back after Texas Federal Court blocks the CTA

On December 3, 2024, the US District Court in the Eastern District of Texas (the Texas Federal Court) granted a nationwide preliminary injunction in favor of certain small businesses, ruling (1) the Corporate Transparency Act (the CTA) is likely unconstitutional and should not be enforced, and (2) to stay all deadlines for companies to comply with the CTA, including the requirement that certain companies file beneficial ownership information (BOI) reports by January 1, 2025.¹ On December 12, 2024, however, the Financial Crimes Enforcement Network (FinCEN) filed a motion in the Texas Federal Court to stay the preliminary injunction, pending an appeal to the US Court of Appeals for the Fifth Circuit.² The deadline for plaintiffs to respond to this motion is December 16, 2024. On December 13, 2024, FinCEN also filed an emergency motion to stay the preliminary injunction pending the appeal in the Fifth Circuit.³ Critically, the Fifth Circuit has ordered the parties to fully complete briefing on the motion to stay by December 19, 2024.⁴ This briefing schedule indicates that the Fifth Circuit intends to swiftly address the preliminary injunction. As a result, companies required to report their BOI should closely monitor updates in the coming weeks.

Background

As covered here and here, the CTA and the regulations promulgated thereunder require certain business entities (Reporting Companies) to file a report with FinCEN with information about their beneficial owners.⁵ The law, which took effect on January 1, 2024, also requires Reporting Companies to file updated reports with FinCEN within 30 days of any changes to the company’s information (e.g., registering a new business name), change in beneficial owners (e.g., appointing a new president or chief financial officer), or a change to any previously disclosed beneficial owner’s information (e.g., new address). Willfully failing to file an initial or updated BOI report, and willfully providing—or attempting to provide—a false or incomplete initial or updated BOI report, carries significant penalties, including hefty fines and potential prison time.

Eversheds Sutherland Observation: Given the Fifth Circuit’s deadline for the parties to complete briefing on the motion to stay the preliminary injunction by December 19, 2024, the Fifth Circuit will likely issue a decision in the coming days on whether to stay the preliminary injunction pending the appeal. Courts generally try to rule on motions to stay nationwide injunctions quickly due to their sweeping effect. Nevertheless, as it is nearing the end of 2024 with the holiday season upon us, it is possible that the Fifth Circuit will not rule on the motion prior to January 1, 2025.

 

Earlier last week, FinCEN issued a statement explaining that Reporting Companies “will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.” However, in its motion filed with the Fifth Circuit, FinCEN signaled its expectation that Reporting Companies continue to prepare to comply by the initially prescribed deadlines, requesting a ruling “no later than December 27, 2024, to ensure that regulated entities can be made aware of their obligation to comply before January 1, 2025.” While FinCEN may adjust the deadline to file the BOI reports, that is not guaranteed.

In light of these developments, Reporting Companies should continue to gather the requisite information so that they are adequately prepared to promptly file their BOI with FinCEN if the nationwide preliminary injunction is lifted.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.


^{1 Dkt. 30, Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024).
2 Dkt. 35, Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Tex. Dec. 11, 2024). 
3 Dkt. 21, Texas Top Cop Shop, Inc. v. Garland, No. 24-40792 (5th Cir. Dec. 13, 2024). 
4 Id. at Dkt. 25. 
5 Reporting Companies created or first registered to do business in the United States on or after January 1, 2024, also must report information about their “company applicants” (i.e., the individual(s) who directly files, or primarily directs or controls the filing of, the document that creates the reporting company or registers it to do business).}