With last injunction lifted, Transparency Act compliance reset

The U.S. Treasury Department’s Financial Crimes Enforcement Network has set a new deadline for compliance with the Corporate Transparency Act’s beneficial ownership information reporting requirements after a federal judge in Texas lifted the one remaining nationwide injunction blocking enforcement of the statute.

“For the vast majority of reporting companies, the new deadline to file an initial, updated, and/or corrected BOI report is now March 21, 2025,” FinCEN announced in a Feb. 19 alert.

The agency’s action comes in response to a Feb. 18 order by U.S. District Court Judge Jeremy D. Kernodle in the Eastern District of Texas. In his order in Smith v. U.S. Department of  Treasury, Kernodle granted the government’s motion to lift a preliminary injunction the judge issued last month blocking enforcement of the CTA.

“In light of the Supreme Court’s order in McHenry v. Texas Top Cop Shop, Inc., the Court has determined that the motion should be, and hereby is, GRANTED,” Kernodle wrote. “The Court’s January 7, 2025, order granting preliminary relief is STAYED pending the disposition of the appeal.”

In announcing the March deadline, FinCEN explained “because the Department of the Treasury recognizes that reporting companies may need additional time to comply with their BOI reporting obligations, FinCEN is generally extending the deadline 30 calendar days from February 19, 2025, for most companies.”

The agency added it might order additional relief going forward. The agency said “in keeping with Treasury’s commitment to reducing regulatory burden on businesses, during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks. FinCEN also intends to initiate a process this year to revise the BOI reporting rule to reduce burden for lower-risk entities, including many U.S. small businesses.”

Judge Kernodle’s order is the latest in a series of federal court rulings</a> pertaining to enforcement of the Transparency Act.

On Jan. 21, the U.S. Supreme Court issued its order in Texas Top Cop Shop lifting a preliminary injunction issued by another judge in the Eastern District of Texas, Amos L. Mazzant, pending an appeal before the 5th U.S. Circuit Court of Appeals.

On Dec. 23, a three-judge motions panel of the 5th Circuit entered an order lifting the preliminary injunction issued by Mazzant. On Dec. 26, the 5th Circuit reversed course. Finding it more prudent “to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments,” the court vacated the motion panel’s order.

In response to the 5th Circuit’s Dec. 23 order, the U.S. Treasury Department’s Financial Crimes Enforcement Network issued an alert that certain companies were once again required to file beneficial ownership information pursuant to the statute.

The five plaintiffs in Texas Top Cop Shop allege that the CTA violated the Commerce Clause and their constitutional rights to privacy. In granting the preliminary injunction, Mazzant found the plaintiffs were likely to prevail on their Commerce Clause claims.

Enacted by Congress in 2021, the CTA is intended to assist the government in combatting money-laundering and other illicit activity by providing for the collection of “beneficial ownership” information from corporations, limited liability companies, and other entities formed under state law.

The act regulates “reporting companies,” which are defined as a “corporation, limited liability company, or other similar entity that is created by the filing of a document with a secretary of state,” or a foreign company registered to do business in the U.S.

Under 31 U.S.C. §5336(b)(2), reporting companies are required to submit to FinCEN a report identifying “each beneficial owner of … the reporting company … by full legal name, date of birth, current … residential or business street address, and [a] unique identifying number from an acceptable identification document or FinCEN identifier.”

With certain exceptions, §5336(a)(3)(A) defines “beneficial owner” as “an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise, exercises substantial control over the entity; or owns or controls not less than [25] percent of the ownership interests of the entity.”

Meanwhile, certain businesses are exempt from the act, including companies that are subject to the reporting requirements of the Securities Exchange Act of 1934 and financial institutions.

Importantly, the act also exempt are “large operating companies” that: (1) have 20 or more full-time employees in the U.S.; (2) have a physical operating presence in the country; and (3) in the previous year derived more than $5 million in annual gross sales from sources in the U.S.