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24 January 20255 minute read

CTA update: Supreme Court grants stay of preliminary injunction on Corporate Transparency Act

Nationwide order in different Texas case staying the reporting rules remains in place

On January 23, 2025, the Supreme Court of the United States granted the federal government a stay of the preliminary injunction foreclosing enforcement of the Corporate Transparency Act (CTA) in McHenry v. Texas Top Cop Shop, Inc. (originally Garland v. Texas Top Cop Shop, Inc., now changed to reflect the new administration).

Prior to the Supreme Court’s order, the CTA, which mandates that certain entities disclose their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), had been subject to a nationwide preliminary injunction following a district court ruling in December 2024 that questioned the CTA’s constitutionality. The government’s appeal of the district court’s ruling is now before the Fifth Circuit.

While the stay has been granted in connection with this injunction, a separate nationwide order staying the effective date of the CTA’s reporting rules issued on January 7, 2025 by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place (see our prior alert on the reporting rules and other CTA requirements here). This means that reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s recent action.

Background and context of the rulings

The litigation that brought this matter before the Supreme Court began with a ruling by the US District Court for the Eastern District of Texas on December 3, 2024. Finding the CTA likely unconstitutional, the court issued a nationwide preliminary injunction against enforcement of the statute.

The government appealed and sought an emergency stay of the injunction, and it was initially granted by a motions panel of the Fifth Circuit on December 23, 2024. However, on December 26, 2024, the Fifth Circuit vacated the stay, reinstating the preliminary injunction.

The government then asked the Supreme Court to stay the injunction, arguing that the CTA was within Congress's constitutional powers, and emphasizing the public interest in its enforcement.

The Court’s opinion, and implications for the CTA

In its stay application to the Supreme Court, the government argued that the CTA is essential for national security and financial crime prevention by protecting the US and its financial system from terrorist financing, sanctions evasion, money laundering, and other illicit activity facilitated by anonymous and/or opaque shell companies, and while meeting international anti-money laundering and countering terrorist financing standards. The government emphasized that the CTA falls within Congress's powers under the Commerce Clause and the Necessary and Proper Clause. The government contended that the CTA's requirements are similar to other reporting mandates upheld by the Court, such as tax returns and Selective Service registration.

The Supreme Court granted the stay without explanation, with Justice Neil Gorsuch and Justice Ketanji Brown Jackson authoring concurring and dissenting opinions, respectively. Nonetheless, the order suggests that the Court sees at least a fair chance that the government will succeed.

Neither Justice Gorsuch’s concurrence nor Justice Jackson’s dissent changes this assessment.

In his lone concurrence, Justice Gorsuch noted that he would have gone further than the majority and addressed whether or not a district court may issue universal injunctive relief. Justice Gorsuch has previously stated that district courts should not enjoin acts of Congress on a nationwide basis, requiring the government to seek interlocutory relief.

Conversely, Justice Jackson dissented. She explained that, regardless of the strength of the government’s arguments on the merits of the CTA, she would deny the stay because the government failed to establish sufficient need for it. Justice Jackson noted that the Fifth Circuit is hearing the government’s appeal on an expedited basis, and she observed that the government had already delayed the enforcement date for the CTA for years, undercutting its claims of harms from further delay.

The Supreme Court's stay is a temporary measure pending the final resolution of the appeal in the Fifth Circuit and any litigation that might follow in the Supreme Court. The Fifth Circuit is scheduled to hear oral argument on March 25, 2025, and a decision is expected thereafter. Depending on the outcome, a petition for a writ of certiorari could be filed, and the Supreme Court may agree to hear the case.

Next steps for reporting companies

While the Supreme Court’s ruling would technically allow enforcement of the CTA to resume while the Fifth Circuit resolves the merits of the appeal, FinCEN confirmed on the Beneficial Ownership Information (BOI) website that compliance with the CTA remains voluntary pursuant to the stay of the effective date of the reporting rules issued in Smith, which remains in place.

Companies are advised to stay alert for FinCEN’s announcement, and to prepare to file BOI reports promptly, if necessary, to avoid potential penalties. For more guidance on BOIs, see our prior alert, here.

DLA Piper is here to help

DLA Piper will continue to monitor the situation and provide updates to help businesses navigate these changes.

For further information, please contact your DLA Piper relationship partner or any of the authors.