FinCEN Asks Supreme Court to Reinstate Law Requiring Ownership Information
Story by Mengqi Sun, Wall Street Journal, 1/10/25
The U.S. Supreme Court is expected to rule soon on the national injunction issued by a lower court that paused the implementation of the Corporate Transparency Act, a law requiring companies to disclose their true ownership.
The U.S. Justice Department, on behalf of the Financial Crimes Enforcement Network, in an application filed on New Year’s Eve asked the Supreme Court to stay the injunction issued by a Texas district judge in early December. The attorneys representing FinCEN said the government is likely to succeed in defending the constitutionality of the law and that the district court’s injunction was “vastly overbroad,” according to the filing. The lawyers said the Supreme Court, at a minimum, should narrow the injunction to the plaintiffs in the case.
The case was submitted to Justice Samuel Alito, who has requested a response from the plaintiffs in response to FinCEN’s motion to stay the injunction by 4 p.m. Friday.
Attorneys from 25 states, including West Virginia, Kansas and South Carolina, on Thursday submitted an amicus brief that asked the court to deny FinCEN’s motion, saying the CTA’s requirements hurt the states and the people that do business in them.
The U.S. government’s plea to the Supreme Court capped a chaotic month in the implementation of the CTA leading up to its first filing deadline of Jan. 1, 2025. The deadline has shifted or potentially changed several times in mere weeks.
The implementation was first halted in early December by a Texas district judge. Then a failed Congressional stopgap bill to keep the U.S. government funded attempted to delay the deadline by a year to 2026, but the final stopgap measure approved by Congress didn’t include the provision. The national injunction was then stayed by a circuit court on Dec. 23, with the Treasury Department extending the deadline to Jan. 13 for most companies to file. The same appeals court, however, four days later vacated the stay, pausing the implementation of the law. The oral arguments for the appeal at the circuit court-level are set for March 25.
Companies and trusts aren’t currently obligated to file beneficial ownership information to FinCEN and won’t face liability if they fail to comply when the injunction is active, the agency said. But companies can still voluntarily file their ownership information with the agency, FinCEN said.
The Corporate Transparency Act, a bipartisan effort passed in 2021 to curtail the use of anonymous shell companies and help track flows of illicit money, mandates millions of companies and trusts to file beneficial ownership information with the Treasury’s FinCEN or face the possibility of penalties such as fines and jail time. The law covers an estimated 32 million small businesses nationwide.
The law has faced several lawsuits from small-business owners and groups challenging its constitutionality since it was passed. At least seven cases are currently pending across the country and observers say it will likely go to the Supreme Court.
“The government continues to believe that the CTA is constitutional and will continue defending the law as necessary,” a FinCEN spokesperson said Wednesday.
Caleb Kruckenberg, the lead attorney representing the plaintiffs in the Texas case and litigation director at nonprofit public-interest law firm Center for Individual Rights, said its team is preparing a response to be submitted to Justice Alito on Friday. Kruckenberg said the law is a violation of the Fourth Amendment prohibiting unreasonable searches and seizures by the government and is an action the federal government doesn’t have authority to impose.
“Because of the kind of information we are talking about, if people are concerned, I would advise people to not file,” he said.
To File or Not to File?
The roller-coaster run of decrees around the law has added to the confusion already felt by many small business and trust owners regarding the patchwork of rulings on the constitutionality of the CTA across various jurisdictions.
“It’s so confusing; we are dealing with the confusion on a daily basis,” Milan Solarz-Patel, a co-founder of beneficial ownership filing service provider FinCEN Guidance, said. “Even the professionals that are using our service are asking, ‘What do we do?’”
But some service providers said many businesses are forging ahead with filing while awaiting legal clarity.
Troy Pospisil, chief executive of legal tech provider Ontra, said many of their customers in the private-equity industry, whose ownership involves complex corporate structures, filed before Jan. 1.
“It’s not wasted in any way,” he said. “Having that info organized is going to be important to comply with other jurisdictions’ requirements and responding to know-your-customer requests.”