After dialing back the Corporate Transparency Act’s beneficial ownership information reporting requirements last month, the Treasury Department is now moving to suspend proceedings in a circuit court case challenging the law’s constitutionality.
Treasury announced last month that it would limit CTA reporting requirements to foreign entities only, exempting U.S. citizens, domestic entities, and their beneficial owners.
The agency then issued an interim rule immediately exempting domestic entities from the reporting requirements. Treasury is seeking comments on the interim rule and intends to issue a final rule later this year.
That left some confusion about the future of cases pending in courts around the country challenging the CTA and the associated beneficial ownership information reporting rule. Among those cases are appeals pending in the 4th, 5th, 9th, and 11th U.S. Circuit Courts of Appeals.
Pause requested. Now, Treasury has filed a motion to hold the 4th Circuit proceedings in abeyance. (Community Associations Institute v. Treasury, No. 24-2118) The motion calls for a pause in the litigation until the agency finalizes its more limited beneficial ownership information reporting rule.
The plaintiffs in that case, the Community Associations Institute (CAI) and its members — who include condominium associations, homeowners associations, and housing cooperatives — are domestic entities. As such, they are exempt under the revised beneficial ownership rule, says Treasury. And once the limited beneficial ownership rule is finalized, the agency contends, the plaintiffs’ constitutional challenges “may eventually become moot.”
What’s more, says Treasury in its motion, “plaintiffs currently face no imminent harm.” The agency notes that “it does not intend to enforce any penalties associated with the reporting rule against U.S. citizens or domestic reporting companies or their beneficial owners.”
The 4th Circuit has requested a response from CAI by May 1.
CAI’s Chief Strategy Officer, Dawn M. Bauman, told Checkpoint that the group “will submit a motion of non-opposition to the government’s request to hold proceedings in abeyance.”
“In continued support of our efforts to exempt community associations from the Corporate Transparency Act, CAI will also file formal comments in response to FinCEN’s interim final rule, strongly urging an exemption from the Beneficial Ownership Information (BOI) reporting requirements,” said Bauman. The group is “hopeful” that the final rule “will reflect this exemption, recognizing the unique, non-business nature of community associations,” she added.
Dems push back on beneficial ownership rule changes. But as Treasury changes course on the CTA, many congressional Democrats are sounding an alarm. In an April 1 letter to Treasury Secretary Scott Bessent, 19 Democrats challenged Treasury’s “sudden, illegal” decision to suspend enforcement of the CTA and the “new rules limiting the reporting requirement to foreign entities alone.”
Democratic lawmakers warned this policy shift “will jeopardize our national security and the integrity of our financial system” by enabling the use of anonymous shell companies for money laundering and other financial crimes.
They also questioned the timing of the announcement, which came just a day after Elon Musk, an adviser to President Donald Trump, replied “I can look into it” to an X.com post complaining about the law. The post had called the CTA’s beneficial ownership information rule “ridiculous,” claiming it is “targeting conservatives and small businesses.”
“There appears to have been no serious interagency process, no time for meaningful consultation with law enforcement or national security experts, and no engagement with Congress prior to Treasury’s abrupt reversal,” the lawmakers told Bessent.
“The CTA… is the law,” they added, “and it cannot be undone through a social media missive or a press release.”
The letter also cited a Financial Times report suggesting Musk himself may be benefiting from foreign investments through legal entities designed to hide the identities of foreign investors.
The lawmakers listed nine questions to Treasury, including whether Trump, Musk, or any individual associated with the two influenced the move to suspend enforcement of the CTA, whether proper consultation occurred before the announcement, and whether the department has conducted a security impact analysis.
They also questioned Treasury’s legal authority to suspend enforcement of a duly enacted statute and asked how the decision would affect U.S. compliance with global anti-money laundering and counterterrorism financing standards.
The letter signatories include Senator Elizabeth Warren (D-MA), ranking member of the Senate Banking, Housing, and Urban Affairs Committee, and Representative Maxine Waters (D-CA), ranking member of the House Financial Services Committees.
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