U.S. District Court Preliminarily Enjoins CTA and CTA Regulations

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On December 3, 2024, the United States District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc., Et. Al. v. Merrick Garland, Attorney General of the United States, Et. Al., Civil Action No. 4:24-CV-478 (the Case) entered an Order preliminarily enjoining nationwide the Financial Crimes Enforcement Network (FinCEN) from enforcing the CTA, including its Reporting Rules. For purposes of the nationwide preliminary injunction (Preliminary Injunction) the Court found that the CTA and such Reporting Rules are likely unconstitutional on several grounds. The Court’s Order granting the Preliminary Injunction does not constitute a final ruling on the merits of the plaintiffs’ claims, and although there can be no assurance, the Court’s Order could be vacated or modified on appeal. The Court’s 79-page Memorandum Opinion and Order can be accessed online by entering the aforesaid Case information in a browser.

The immediate effect of the Preliminary Injunction is that the deadline for Reporting Companies to file Beneficial Owner Information Reports (BOIRs) on or before January 1, 2025, for Reporting Companies formed or organized before January 1, 2024, is stayed while the Preliminary Injunction is in effect. While the Court’s Order does not address specifically the requirement that Reporting Companies formed or organized after January 1, 2024, must file within 90 days of the official formation or organization date, given the breadth of the Court’s Order it would seem reasonable that those requirements of the CTA’s Reporting Rules are enjoined as well.

It is highly likely that the federal government (Government) will appeal the Court’s Order, and it is, therefore, possible that the Preliminary Injunction could be vacated or modified thereby leaving the filing deadline of January 1, 2025, or 90-day BOIR filing deadlines for Reporting Companies formed or organized after January 1, 2024, in place. So, at the very least prudence suggests that notwithstanding the Preliminary Injunction Reporting Companies should consider completing the BOIR filing process—at this writing FinCEN apparently is continuing to accept BOIRs that comply with the Reporting Rules—especially considering the possible civil and criminal fines and penalties for non-compliance with the CTA of $500 (currently inflation adjusted to $591) per day for continued violation, not to exceed $10,000, and possible imprisonment of not more than two (2) years—if the Court’s Order is vacated or modified leaving the original filing deadlines in place. At the very least Reporting Companies are well-advised to assemble and keep current the information necessary to complete BOIRs and amendments to those previously filed so that the filing or amendment processes can be completed within what may be very short periods of time.

Irrespective of how Reporting Companies choose to proceed during the period of uncertainty regarding the future of the CTA and the obligations of Reporting Companies thereunder, Reporting Companies should take care to remain abreast of legal developments concerning CTA and its Rules and Regulations, as they occur.

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