On December 23, 2024, the United States Court of Appeals for the Fifth Circuit issued an unpublished order granting the government’s emergency motion to stay a preliminary injunction against the Corporate Transparency Act (“CTA”). In Texas Top Cop Shop, Inc. et al. v. Merrick Garland et al., Case No. 24-40792, the Fifth Circuit temporarily restored the CTA’s enforcement pending appeal, preventing a nationwide injunction from taking effect just weeks before the crucial January 1, 2025 compliance deadline.
Background on the Corporate Transparency Act
Enacted in 2021 as part of the National Defense Authorization Act, the CTA aims to combat money laundering, terrorism financing, and other illicit financial activities. The statute requires certain nonexempt companies to disclose beneficial ownership information to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). This requirement seeks to close loopholes that allow anonymous corporate entities to hide illicit funds or evade legal obligations.
Under the CTA, “reporting companies” must submit identifying information—such as names, addresses, and other key data—of their beneficial owners or applicants. The law contains exemptions for certain types of entities, including those that are already heavily regulated or that are dormant and effectively engage in no meaningful commercial activity.
The District Court’s Preliminary Injunction
On December 3, 2024—less than a month before the CTA’s January 1, 2025 reporting deadline—the Eastern District of Texas granted the plaintiffs’ (collectively referred to as the “Businesses”) motion for a preliminary injunction and entered a sweeping, nationwide order enjoining the CTA and its implementing regulation (31 C.F.R. § 1010.380). Notably, the court did so without any party specifically requesting such a nationwide scope.
The district court found that the CTA exceeded Congress’s constitutional authority, rendering it likely unconstitutional. However, other federal district courts assessing the CTA’s constitutionality had come to markedly different conclusions—two upholding the law and another enjoining it only as to the specific plaintiffs in that case.
The Fifth Circuit’s Stay Pending Appeal
In ruling on the government’s emergency motion for a stay pending appeal, the Fifth Circuit applied the four Nken v. Holder factors:
- Likelihood of Success on the Merits: The panel found that the government made a strong showing that the CTA falls within Congress’s broad authority under the Commerce Clause. Because the statute regulates beneficial ownership of entities that engage, or have the propensity to engage, in economic activity, the court reasoned that the CTA likely satisfies the requirement that it regulate activity “substantially affecting interstate commerce.”
- Irreparable Harm to the Government Absent a Stay: The court cited longstanding precedent that the government suffers irreparable harm when the enforcement of a properly enacted statute is enjoined.
- Potential Injury to Other Parties: The court concluded that the Businesses had not shown significant or specific potential burdens, particularly given FinCEN’s estimate that completing the beneficial ownership report would only require about 90 minutes of work for a simple entity.
- Public Interest: Emphasizing the CTA’s purpose to combat money laundering and terrorist financing, the court found that temporarily staying the injunction best serves the public interest. The CTA also supports the United States’ negotiations with foreign partners to strengthen anti-money-laundering regimes worldwide.
Key Takeaways
- The CTA is back in force—at least for now. The Fifth Circuit’s stay allows the Treasury Department to resume enforcement of the CTA’s reporting rules while the merits of the case proceed on appeal.
- Nationwide injunctions remain contentious. This case highlights the ongoing debate over the propriety of issuing broad injunctions, especially when every district court to consider the issue might reach a different outcome.
- Compliance deadlines remain critical. Businesses subject to the CTA should assume the January 1, 2025 reporting deadline remains in effect. Entities should be prepared to file beneficial ownership reports—or risk possible penalties—unless the law is struck down at a later date.
Looking Ahead
The Fifth Circuit’s order expedites the case for oral argument, so further developments will likely unfold in the coming weeks. Businesses concerned about CTA obligations should stay vigilant, watch for appellate updates, and consult legal counsel about potential compliance strategies. For now, the CTA reporting rules remain in full effect, and Texas Top Cop Shop, Inc. et al. remains a prominent battle over congressional power and the constitutional reach of federal economic regulations.
What happens Next? Well the case my escalate to the Supreme Court of the United States
If this case is escalated to the Supreme Court of the United States (SCOTUS), the process would involve these key steps:
1. Filing a Petition for Writ of Certiorari
- The losing party at the Fifth Circuit (likely the plaintiffs opposing the Corporate Transparency Act) would file a petition asking SCOTUS to review the case. This petition must outline why the case involves important legal or constitutional questions, such as whether the CTA violates the Commerce Clause, First Amendment, or other rights.
2. Response from the Government
- The government (defending the CTA) would file a brief in opposition, arguing why the Supreme Court should deny certiorari and allow the Fifth Circuit’s decision to stand.
3. SCOTUS Decides on Certiorari
- The Supreme Court is not required to take every case. At least four justices must vote to grant certiorari. The Court may choose to hear the case if it raises:
- A significant federal question,
- Conflicting rulings from different circuit courts, or
- Broad implications for federal laws or constitutional principles.
4. Emergency Stay (Optional)
- Either party may ask SCOTUS for an emergency stay during the appeal, particularly if they argue irreparable harm will occur while awaiting a final decision. This is common in cases with pressing deadlines, like the January 1, 2025, CTA reporting requirement.
5. Briefs and Oral Arguments
- If SCOTUS takes the case, both sides would file briefs, and amici curiae (interested third parties) could submit supporting briefs. The Court would then hold oral arguments, allowing justices to question attorneys from both sides.
6. SCOTUS Decision
- The Court would issue a final opinion deciding whether the CTA (or specific aspects of it) is constitutional. This decision would be binding nationwide, resolving any disputes between lower courts.
Likely Issues SCOTUS Might Address:
- Commerce Clause: Whether Congress exceeded its authority by requiring beneficial ownership reporting for entities engaged in intrastate activities.
- First Amendment: Whether disclosure requirements violate freedom of association by exposing membership or ownership in certain organizations.
- Fourth Amendment: Whether the CTA constitutes an unreasonable search or invasion of privacy.
Given the broad implications for financial regulation and privacy, SCOTUS could be highly interested in the case. If they decide to hear it, a ruling could set a landmark precedent for corporate transparency and constitutional law.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice.
