• A U.S. appeals court has paused enforcement of the Corporate Transparency Act (CTA), a key anti-money laundering law.

• The Fifth Circuit Court’s decision follows a ruling by a Texas judge deeming the law unconstitutional.

• The law’s fate will be determined in a hearing scheduled for March 25.

• Companies are no longer required to meet the January 13 reporting deadline, per the Treasury Department.

A federal appeals court has reinstated a nationwide injunction blocking the enforcement of the Corporate Transparency Act (CTA), a 2021 anti-money laundering law that mandates companies disclose their beneficial owners to the U.S. Treasury Department, according to a Reuters report. 

• The New Orleans-based Fifth Circuit Court of Appeals issued the order late Thursday, December 27, maintaining the status quo until a more thorough review of the law’s constitutionality can occur.

• This decision overturns a prior ruling from earlier in the week, where a three-judge panel temporarily allowed enforcement while the Department of Justice appealed. 

• The court clarified that its latest action aims to "preserve the constitutional status quo" as substantive arguments are considered.

Challenging the Law’s Constitutionality

The injunction originated from a December 3 ruling by U.S. District Judge Amos Mazzant in Texas, who concluded that the CTA likely oversteps Congressional authority and infringes on states’ rights under the Tenth Amendment. 

Judge Mazzant described the legislation as a "quasi-Orwellian statute," criticizing its potential to impose costly and burdensome compliance requirements on millions of U.S. businesses.

The plaintiffs—led by the National Federation of Independent Business and represented by the conservative Center for Individual Rights—argued that the CTA violates fundamental constitutional protections. These include:

• First Amendment: Alleged infringement on rights to free association.

• Fourth Amendment: Concerns over the disclosure of private information.

• Tenth Amendment: Claims that the law usurps state powers to regulate corporate entities.

"Given that we have established that the CTA is likely unconstitutional, this intrusive form of government surveillance should be halted until the law's fate is finally resolved," said the Center’s president, Todd Gaziano.

While opponents highlight constitutional concerns and administrative burdens, proponents emphasize the need to address the U.S.’s vulnerability to financial crimes. Supporters argue the law is essential to curb the use of anonymous shell companies by criminals and terrorists to conceal illicit funds.

Implications for U.S. Businesses

The CTA was designed to combat money laundering and other financial crimes by requiring entities like corporations and limited liability companies (LLCs) to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). 

• Before the injunction, approximately 32.6 million existing businesses faced a January 13, 2024, deadline to submit initial reports, with reporting obligations extending into 2025. 

• Following the court’s decision, FinCEN announced that reporting is no longer required but encouraged companies to voluntarily comply.

What Comes Next

The Fifth Circuit has scheduled oral arguments for March 25 to determine the law’s future. 

This back and forth in the courts has created widespread confusion and uncertainty, Danielle Lemberg, a Seward & Kissel LLP partner working on corporate formations and transactions, told Bloomberg Law. 

“Our advice to clients throughout this sort of turmoil is, if they’ve completed their own analysis as to their beneficial ownership information, if they have all of their information at hand, they may wish to voluntarily file,” Lemberg said. “Or at the least, they gather all of that information and have it at hand, so that they’re ready to file if the injunction is lifted and the CTA requirements are forced.”