In a significant legal development, the New Orleans-based 5th U.S. Circuit Court of Appeals has halted enforcement of the Corporate Transparency Act (CTA), which requires companies to disclose their real beneficial owners to the U.S. Treasury Department. This decision comes ahead of the initial January 13 deadline for compliance, creating uncertainty for businesses nationwide.
Appeals Court Reinstates Injunction Against the CTA
On Thursday, the appeals court reinstated a nationwide injunction issued earlier by U.S. District Judge Amos Mazzant in Texas. Judge Mazzant ruled that the CTA, enacted in 2021, was unconstitutional and infringed on states’ rights under the Tenth Amendment. Initially, a three-judge panel of the 5th Circuit temporarily paused the injunction at the U.S. Department of Justice’s request. However, the court reversed its stance and decided to maintain the injunction until a separate panel evaluates the case on its merits.
The court emphasized its commitment to preserving the “constitutional status quo” as it prepares to hear substantive arguments on March 25.
FinCEN Responds to Court Ruling
Following the appeals court’s order, the Financial Crimes Enforcement Network (FinCEN) announced that companies are no longer required to file beneficial ownership reports by the January deadline. However, FinCEN encouraged businesses to continue submitting reports voluntarily. This temporary halt relieves many companies from the immediate compliance burden but leaves the future of the law uncertain.
The National Federation of Independent Business, along with small businesses represented by the conservative Center for Individual Rights, challenged the CTA. Todd Gaziano, president of the Center for Individual Rights, welcomed the ruling, stating that the law imposes an “intrusive form of government surveillance” and should remain paused until courts resolve its constitutionality.
Judge Mazzant Criticizes the CTA’s Scope
Judge Mazzant strongly criticized the CTA, labeling it a “quasi-Orwellian statute.” He argued that Congress exceeded its constitutional authority by passing the law, which mandates reporting of beneficial ownership information to combat money laundering and financial crimes. Proponents of the CTA believe the law addresses the growing use of anonymous corporate entities for illicit purposes. However, opponents view it as federal overreach that violates states’ rights and burdens businesses.
Next Steps in the Legal Battle
The appeals court’s March hearing will determine the CTA’s ultimate fate. For now, businesses can take a temporary reprieve from the reporting requirements while awaiting a final ruling. This case highlights the ongoing tension between federal and state powers and raises questions about the balance between financial transparency and privacy rights.
As the legal process unfolds, the debate over the CTA underscores broader concerns about government surveillance and constitutional limits.
