What Happened

In Texas Top Cop Shop v. Garland et al. (Case 4:24-cv-00478) (Dec. 3, 2024), the US District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA), questioning its constitutionality and noting its impact on small businesses. The CTA, enacted as part of broader anti-money laundering efforts, mandates companies to disclose their beneficial ownership information to a federal database maintained by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

The Court Found the CTA is Likely Unconstitutional

The injunction entered by US District Judge Amos Mazzant comes just weeks before a January 1 deadline for compliance with the reporting requirements, which call for businesses to disclose information to the US Treasury Department on their true “beneficial owners.”

The requirements were finalized two years ago to help implement the CTA, which was a bipartisan legislative crackdown on money laundering, but they have since become the target of multiple repeal efforts and legal challenges.

The plaintiffs, a group that included small business owners and a trade association, argued that the CTA compels speech and association, infringing on First Amendment protections. They also raised concerns about privacy violations under the Fourth Amendment, given the extensive personal information required.

“For good reason, plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government,” Judge Mazzant wrote.

“Despite attempting to reconcile the CTA with the Constitution at every turn, the government is unable to provide the court with any tenable theory that the CTA falls within Congress’s power. And even in the face of the deference the court must give Congress, the CTA appears likely unconstitutional,” he added. “Accordingly, the CTA and its implementing regulations must be enjoined.”

Judge Mazzant noted that corporate regulation has traditionally fallen within the states’ jurisdiction. By mandating federal oversight of corporate ownership, the CTA disrupts the balance of power inherent to the US federalist system. Furthermore, the court found that the Act burdens businesses with significant compliance costs—projected to exceed $22 billion in the first year alone—without clear safeguards against misuse of collected data.

The Court Imposed a Nationwide Injunction

The court explicitly ordered that the preliminary injunction applies nationwide. Judge Mazzant noted that both the CTA and the associated Reporting Rule impact approximately 32.6 million businesses across the United States. Because one of the plaintiffs, the National Federation of Independent Business (NFIB), represents members nationwide, the court concluded that a nationwide injunction was necessary to provide meaningful relief and address the extensive constitutional violations identified.

What’s Next for the CTA?

The incoming Trump administration could take several steps to limit or halt the enforcement of the CTA administratively:

1. Revisiting Implementing Regulations: The administration could direct the Treasury Department and FinCEN to review the implementing regulations of the CTA. Agencies could delay enforcement by revising or repealing these rules, a process that would require notice-and-comment rulemaking under the Administrative Procedure Act.
2. Resource Allocation: The administration could deprioritize enforcement of the CTA by limiting the funding and staffing dedicated to compliance oversight and enforcement. While the Act remains on the books, enforcement actions would effectively be curtailed.
3. Policy Guidance: Through executive actions or agency memos, the administration could issue guidance limiting the circumstances under which beneficial ownership information is collected or used, effectively narrowing the law’s application.
4. Legislative Collaboration: The administration could work with Congress to repeal or amend the CTA, potentially eliminating or significantly reducing its scope. This would require Congress to act, and would therefore depend on the ability of the Trump administration to marshal support for repeal or amendment in both houses of Congress.

While these administrative measures could limit enforcement, they do not eliminate the statutory obligations under the CTA. Businesses would remain legally required to comply unless the law itself is repealed or permanently enjoined by the courts.

Recommended Steps for Businesses

Considering this nationwide injunction and potential administrative changes, businesses must carefully evaluate their next steps regarding compliance with the CTA.

Businesses That Have Already Filed BOI Reports With FinCEN:

• Pause Compliance Efforts (with respect to updated or corrected reporting): The injunction currently halts enforcement of the CTA. While FinCEN may appeal, no immediate action is required at this stage.
• Monitor Legal and Administrative Developments: Stay updated on litigation outcomes and any policy shifts under the next administration.
• Protect Data: Ensure that any previously submitted beneficial ownership information is safeguarded against potential misuse.

Businesses That Have Not Yet Filed BOI Reports with FinCEN:

• Delay Filing: The nationwide injunction means that no business is currently required to comply with the CTA, but further guidance or court decisions could reinstate the Act’s enforceability.
• Continue to Prepare: Businesses who are obligated to report under the CTA should continue to gather information needed to prepare the BOI Reports so they are ready to file. If the injunction is overturned on appeal, businesses may need to act quickly to meet reporting deadlines.
• Monitor Legal and Administrative Developments: Stay updated on litigation outcomes and any policy shifts under the next administration.

The Road Ahead

The nationwide injunction marks the beginning of what is likely to be a protracted legal battle. The government will almost certainly appeal the decision, and its outcome could shape the future of federal regulatory authority. Additionally, the incoming Trump administration may take steps to limit the CTA administratively, adding another layer of uncertainty for businesses.

Amy McDaniel and Williams Conor Shary contributed to this.