Reading the Tea Leaves: Corporate Transparency Act Update

For those with Corporate Transparency Act whiplash, here’s a roundup of the latest developments — including one practitioner’s take on them and the lingering questions.

Under the CTA, certain entities are required to report information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN). But what was originally a bipartisan effort to combat money laundering and other financial crimes through the use of shell companies has become a back-and-forth battle in the courts and at Treasury.

In the past few months, we’ve seen the CTA’s beneficial ownership reporting requirements put on hold, reinstated, and put on hold again. And in the most recent development, Treasury said it would not be imposing fines or penalties for failure to file the reports — and it would be further extending the reporting deadline and limiting the reporting requirements to foreign entities.

“The on again/off again rollout of the CTA reporting regulations has presented challenges on how to advise clients of their compliance obligations,” Kevin Shepherd, a partner at Venable LLP, told Checkpoint. He noted that with revised reporting deadlines expected from FinCEN by March 21, “many practitioners are advising clients to await the new reporting deadlines before making any filings.”

According to Shepherd, “the revised reporting deadlines, coupled with a proposed narrowing of the reporting requirements to only foreign reporting companies, creates much uncertainty.”

Litigation update.

Cases contesting the CTA are pending in several federal courts, including the 5th and 11th U.S. Circuit Courts of Appeals. Shepherd said that “on the litigation front, it appears that the Justice Department continues to defend the CTA.”

In the case pending in the 5th Circuit, Texas Top Cop Shop v. Bondi, the government notes in its March 7 reply brief that Treasury will be issuing a forthcoming rule extending reporting deadlines and has announced it will not enforce reporting requirements against U.S. citizens or domestic entities. “These developments further undermine plaintiffs’ equities in seeking injunctive relief,” reads the brief.

Days later, the 5th Circuit asked the parties in Texas Top Cop Shop to address the planned enforcement shift — setting a March 17 deadline for briefing.

The 11th Circuit held oral arguments months ago in a constitutional challenge to the CTA brought by small business owners — but it has yet to issue a decision. Now, that circuit court, too, is requesting supplemental briefing from the parties in National Small Business United v. Treasury on the implications of Treasury’s plans to enforce the reporting requirements only for foreign entities.

Shepherd’s take is that “the 11th Circuit wants the litigants to assess how Treasury’s enforcement suspension and narrowing of the reporting regime will affect the National Small Business United case.” He added that “based on the briefing schedule, it appears that a decision in that case is more than a month away.”

Meanwhile, 12 state attorneys general have filed an amicus brief in the 5th Circuit case, arguing that the CTA usurps states’ rights, including their “traditional police power over corporations and corporate regulation” and “role of overseeing business entities.”

As the “traditional regulators of criminal conduct,” say the state AGs, “States are better placed than FinCEN to regulate the suspicious corporate activity that the CTA attempts to capture.” They point to “institutional advantages that equip them to enforce the law more ably than a federal agency.”

Regulatory update.

“On the regulatory front, we should see revised reporting deadlines within the next few days,” said Shepherd. He also expects proposed regulations that will “apparently limit the reporting requirements” to foreign entities.

But there may be a bipartisan effort in Congress brewing to hold Treasury to the CTA’s statutory requirements.

Senators Sheldon Whitehouse (D-RI) and Chuck Grassley (R-IA) have requested that Treasury Secretary Scott Bessent explain the legal basis for the agency’s “policy decision to categorically suspend enforcement of the CTA’s reporting requirements for all U.S. citizens and domestic reporting companies.”

The senators acknowledge that the CTA allows for exclusions of “an entity or a class of entities” from the reporting requirements but note the guardrails on such exclusions. Namely, exclusions must go through the regulatory process, the Attorney General and Secretary of Homeland Security must be on board, and Treasury must determine that reports for excluded entities “would not serve the public interest” and “would not be highly useful in national security, intelligence, and law enforcement agency efforts” to combat money laundering and other crimes.

They ask how Treasury will ensure that “any change in the practice or rulemaking governing BOI reporting fulfills the law enforcement and national security purposes of the CTA.” The March 10 letter requested a response in just two days.

Shepherd said “this request shows a desire by at least two senators for Treasury to explain how proposed changes to the CTA’s existing framework comports with the policy objectives of the CTA.”

He added that while Grassley chairs the Senate’s Judiciary Committee, “the letter appears to have been sent in his individual capacity and not as chair of that committee.”

Remaining questions.

“Given the twists and turns and unexpected developments to date, it’s exceedingly difficult to gauge what will occur next,” said Shepherd.

Adding to the uncertainty is the fight in Congress over fiscal year 2025 government funding. “If the federal government shuts down on Friday night because of the inability to pass the spending bill, how will that affect FinCEN’s issuance of revised reporting deadlines before the current March 21, 2025 reporting deadline?” asked Shepherd.

Treasury’s forthcoming regulations also will need to more clearly define which entities it intends to exempt from the reporting requirements. Specifically, “it will be interesting to see if these regulations will exclude the reporting of U.S. citizens who happen to be beneficial owners of foreign reporting companies,” said Shepherd.

Another concern for Shepherd pertains to those entities that have already filed their reports. Some 9.5 million reports had been filed as of early December, before a nationwide injunction on the reporting requirements was put in place. Since then, courts and Treasury have gone back and forth on the reporting requirements — so many entities may have held off on filing reports if they had not already done so.

In addition, entities formed during 2024 had shorter filing deadlines — they were required to file initial reports “within 90 calendar days after receiving actual or public notice that [their] creation or registration is effective.”

But Shepherd said that now “over 10 million filings have already been made.”

“If the CTA is limited to the reporting of beneficial ownership information for foreign reporting companies, what happens to the extensive data already submitted to FinCEN for domestic reporting companies?” asked Shepherd. “Will that data reside forever in the FinCEN database?”