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Yesterday, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction that, while in force, suspends enforcement of the Corporate Transparency Act, 31 U.S.C. § 5336 (the “CTA”) and its implementing regulation requiring that certain U.S. entities and foreign entities registered to do business in the United States (collectively, “Reporting Companies”) submit beneficial ownership information (BOI) reports to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), 31 C.F.R. § 1010.380 (the “Reporting Rule”).[1]
The Court found that the CTA is likely to exceed Congress’s enumerated powers, both under the Commerce Clause and the Necessary and Proper Clause, and since the Reporting Rule implements the CTA, it found the Reporting Rule to also likely be unconstitutional for the same reason. The Court granted plaintiffs’ motion for a preliminary injunction and thereby, (i) temporarily enjoined the CTA pending a further order of the court; (ii) temporarily enjoined FinCEN from enforcing the Reporting Rule; and (iii) stayed the January 1, 2025 compliance deadline under 5 U.S.C. § 705 of the Administrative Procedure Act.
Unlike the prior decision issued by a district court in Alabama, which is currently under review by the Eleventh Circuit,[2] the Texas decision explicitly provides for nationwide relief, noting that “[n]either [the CTA nor the Reporting Rule] may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025 BOI reporting deadline pending further order of the Court.”[3]
We have yet to see how FinCEN and the Department of Justice will respond to this decision. While we expect that FinCEN will issue guidance in the coming days, affected companies should be directed to contact their counsel on next steps, and to stay alert for guidance and announcements from FinCEN, including news about the filing of an emergency appeal, which can ultimately affect the status of this nationwide injunction.
[1] Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Tex. Dec. 3, 2024).
[2] National Small Bus. United v. Yellen, 5:22-cv-01448 (N.D. Ala. 2024); National Small Bus. United v. U.S. Dep’t of the Treasury, Appeal No. 24-10736 (11th Cir.).
[3] Texas Top Cop Shop, Inc. at 79 (emphasis added).
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