On December 3, 2024, a federal district court in Texas issued a nationwide preliminary injunction that temporarily halted the implementation of the Corporate Transparency Act (CTA). The ruling disrupted the requirement for reporting companies to file key ownership and control information with the Financial Crimes Enforcement Network (FinCEN). However, on December 11, 2024, the U.S. government filed a motion seeking an immediate stay of this injunction, signaling its intention to challenge the decision in the Fifth Circuit Court of Appeals.
The CTA mandates that certain companies disclose information about their beneficial owners to help combat money laundering and financial crime. This injunction has introduced confusion, particularly as companies were preparing to meet a January 1, 2025, compliance deadline. If the stay is granted, this deadline would resume, unless the appellate court or FinCEN extends it. However, as is often the case in such scenarios, a grace period is likely to be provided to ease the transition.
The government’s motion for a stay argues that without immediate relief, it will face irreparable harm. The government contends that the injunction is disruptive to the implementation process, especially as the number of filings increases as the deadline approaches. Additionally, the injunction has led to widespread confusion among the public, further complicating compliance efforts.
Notably, the government took eight days to file the motion, a delay that may seem unusual since such motions are typically filed soon after a district court ruling. In its motion, the government stressed the urgency of getting relief in time for the approaching January 1 deadline and stated that if the district court does not rule quickly, it would seek immediate relief from the Fifth Circuit.
On December 12, 2024, the district court issued an order saying it would not rule on the government’s motion within the requested timeline. The court reasoned that it needed to give the plaintiffs a chance to respond by December 16, 2024, and noted that the government’s motion failed to meet several procedural requirements of an emergency motion.
The district court’s decision on the government’s motion is expected to come early next week, likely by Monday or Tuesday, although many experts believe the court will not grant the stay. This would mean the injunction remains in effect until a ruling from the Fifth Circuit. If the stay is denied, the government may escalate the case to the Supreme Court. If the stay is granted, the January 1 deadline would resume, unless extended.
In such situations, agencies like FinCEN typically provide a grace period to avoid confusion, although FinCEN has not yet indicated whether it will issue such guidance. If the Fifth Circuit denies the stay, the government could continue its appeal or request relief from the Supreme Court.
For businesses affected by the CTA, the uncertainty around the stay highlights the importance of preparing for compliance under the CTA, even if the final decision has not yet been made. Companies may consider voluntarily filing their reports or preparing to do so quickly in case the injunction is lifted unexpectedly. As developments continue, we will provide updates on the situation as they unfold.