Court Blocks Nationwide Injunction of the Corporate Transparency Act: Fifth Circuit Grants Stay Pending Appeal; Compliance Period Briefly Extended | Weintraub Tobin
On December 23, 2024, the Fifth Circuit Court of Appeals granted the government’s emergency motion for a stay, effectively blocking a nationwide injunction issued by a district court against the Corporate Transparency Act (CTA) and its corresponding Reporting Rule. While this decision preserves the CTA’s reporting requirements, the Financial Crimes Enforcement Network (FinCEN) has extended the compliance reporting deadline to January 13, 2025, giving entities a brief window to file their reports while appellate litigation continues. Businesses are encouraged to work with deliberate speed to meet this deadline.
The CTA, enacted in 2021, mandates certain corporations to disclose beneficial ownership information to FinCEN to combat illicit financial activity. The district court’s prior ruling, which deemed the CTA unconstitutional, had enjoined its enforcement nationwide. The Fifth Circuit’s decision to stay that injunction was guided by the four factors established in Nken v. Holder, 556 U.S. 418 (2009), for granting a stay pending appeal.
Key Reasons for Granting the Stay
The Fifth Circuit granted the stay based on four key factors. First, the court found a strong likelihood of the CTA’s constitutionality under the Commerce Clause, as it regulates economic activities with significant interstate impact. The court rejected challenges to the statute’s application, noting its exemptions for dormant entities and entities where reporting would not serve the public interest. Second, the court emphasized that enjoining a statute enacted by Congress constitutes irreparable harm to the government, particularly when the law is critical for combating financial crimes such as money laundering or terrorism financing. Third, the court deemed the compliance burden for businesses minimal. Lastly, the public interest in addressing financial crimes and bolstering national security outweighed any potential harm to the businesses challenging the law.
Implications of the Stay
By granting the stay, the Fifth Circuit ensures that the CTA’s reporting requirements will remain in effect pending further judicial review. The Fifth Circuit Court of Appeals ordered the appeal to be expedited for oral argument, signaling the importance of resolving these constitutional questions promptly.
