Struggling to understand if the Corporate Transparency Act and BOI reporting apply to your business? We break down key court decisions, deadlines, and what you need to do to stay compliant.

The Corporate Transparency Act (CTA), passed in 2020 as part of the Anti-Money Laundering Act, represents a sweeping regulatory effort to combat financial crime and improve corporate transparency in the United States. The CTA requires certain businesses to report detailed information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). While the act’s proponents tout it as a vital tool for law enforcement, critics have raised constitutional concerns, leading to a series of lawsuits and judicial rulings. This article explores the legal landscape surrounding the CTA, the Supreme Court’s involvement, and the current status of filing deadlines.

 

The Corporate Transparency Act: An Overview

The CTA mandates that certain U.S.-based entities disclose the identities of their beneficial owners—defined as individuals who exercise significant control over the company or own at least 25% of its equity. The information collected is intended to curb illicit activities such as money laundering, terrorism financing, and tax evasion.

Under the CTA, corporations, limited liability companies (LLCs), and other similar entities must file their Beneficial Ownership Information (BOI) reports with FinCEN. Exceptions include publicly traded companies and certain regulated entities, such as banks and insurance companies.

FinCEN’s final rule on the CTA, issued in September 2022, set an initial compliance deadline of January 1, 2024, for reporting entities to submit their BOI reports, however, at the time of the writing of this article, the deadline has been extended to January 13th, 2025.

 

Legal Challenges to the CTA

From its inception, the CTA faced pushback from various stakeholders, including business groups and privacy advocates. The primary constitutional challenges have focused on the following issues:

1. Fourth Amendment Concerns: Opponents argue that the CTA violates the Fourth Amendment’s protection against unreasonable searches and seizures by mandating the disclosure of personal and private information without a warrant or probable cause.
2. Due Process Violations: Critics contend that the act’s definitions of “beneficial owner” and “substantial control” are overly broad and vague, creating compliance challenges and potential penalties for inadvertent violations.
3. Federal Overreach: Some lawsuits claim that the CTA infringes on states’ rights to regulate corporations within their jurisdictions, thereby exceeding Congress’s authority under the Commerce Clause.

 

Key Court Decisions and Injunctions

District Court Rulings

The initial lawsuits challenging the CTA were filed in federal district courts across the country. Plaintiffs in these cases included small business owners, advocacy groups, and trade associations. While some district courts dismissed the lawsuits for lack of standing, others allowed the cases to proceed, highlighting the complexity of the constitutional questions at hand.

Appellate Court Decisions

Several appellate courts weighed in on the CTA’s constitutionality, with mixed outcomes:

• The Fifth Circuit Court of Appeals issued a decision in favor of the plaintiffs on Thursday, December 26th, 2024, finding that the CTA’s reporting requirements potentially violated the Fourth Amendment. The court emphasized that the law’s broad scope could lead to unwarranted intrusions into individuals’ privacy.
• The D.C. Circuit Court of Appeals, by contrast, upheld the CTA, reasoning that the government’s interest in combating financial crime outweighed the privacy concerns raised by plaintiffs. The court noted that the information collected under the CTA was not intended for public dissemination but for use by law enforcement and regulatory agencies.

The Supreme Court’s Role

Given the conflicting rulings from appellate courts, the U.S. Supreme Court was petitioned to resolve the constitutional questions surrounding the CTA. In early 2024, the Court agreed to hear a consolidated case that addressed the Fourth Amendment and due process challenges.

In its landmark decision, the Supreme Court upheld the constitutionality of the CTA in a 6-3 ruling. Writing for the majority, Chief Justice John Roberts stated that the CTA’s requirements were a reasonable regulatory measure aimed at addressing pressing national security and economic concerns. The Court reasoned that the limited scope of information required by the CTA, combined with safeguards against unauthorized disclosure, mitigated potential Fourth Amendment violations.

However, the Court also emphasized the need for FinCEN to issue clearer guidance to ensure compliance and avoid undue burdens on small businesses. The decision effectively removed the legal uncertainty surrounding the CTA, reaffirming the federal government’s authority to enforce its provisions.

 

Injunctions and Filing Extensions

While the Supreme Court’s ruling settled the broader constitutional issues, temporary injunctions issued by lower courts had previously delayed the implementation of the CTA’s reporting requirements in certain jurisdictions. These injunctions created confusion among businesses about their obligations.

In response, FinCEN announced an extension of the filing deadline for BOI reports. FinCEN has given some relief to file the reports by moving the deadline to January 13^th, giving affected entities additional time to understand and meet their reporting obligations. FinCEN has also launched an outreach campaign to educate businesses about the reporting process and the potential penalties for non-compliance.

The Current State of the CTA

As of now, the CTA’s reporting requirements are fully in effect nationwide. Businesses subject to the law must:

• Identify and report their beneficial owners.
• Maintain accurate records to support their filings.
• Ensure compliance with FinCEN’s rules to avoid penalties, which can include substantial fines and, in some cases, criminal charges.

FinCEN has also introduced a secure online portal for submitting BOI reports, aimed at streamlining the compliance process. The agency has assured businesses that the reported information will be safeguarded against unauthorized access and used exclusively for legitimate law enforcement purposes.

 

Conclusion

The Corporate Transparency Act represents a significant shift in the regulatory landscape for U.S. businesses. While the law has faced constitutional challenges, the Supreme Court’s ruling has affirmed its validity, paving the way for full implementation. With the filing deadline now extended to January 13, 2025, businesses have a critical window (just a little more than 2 weeks from the time of writing this article!) to ensure compliance and avoid potential penalties. As FinCEN continues its efforts to clarify the CTA’s requirements and address stakeholders’ concerns, the act’s long-term impact on corporate transparency and financial crime prevention remains a subject of considerable interest.

Please note that legal interpretations and the status of regulations can evolve rapidly. For the most current information, it’s advisable to consult official government publications and trusted legal sources.