The Supreme Court will likely decide whether a nationwide injunction against enforcement of the Corporate Transparency Act — a law which in part requires businesses to disclose their beneficial owners — in the coming days after lower courts have reached divergent conclusions about its constitutionality.
The Corporate Transparency Act, signed into law in January 2021 as part of the National Defense Authorization Act, represents a significant overhaul of how businesses disclose ownership information by requiring most U.S. companies to disclose the identity of their controlling owners to the Treasury Department's Financial Crimes Enforcement Network.
Since the law's passage, a slew of lawsuits have been launched challenging the law's constitutionality. Contradictory rulings in various jurisdictions have created a split between U.S. circuit courts, and the U.S. Court of Appeals for the Fifth Circuit went as far as to put a nationwide injunction on the CTA. The Biden administration later appealed the injunction to the Supreme Court, which on Jan. 3 sought briefs from the petitioners and amicus briefs from interested parties — a possible foreshadowing of a full-court review of the case. That deadline to file briefs to the court expired on Jan. 10.
The law was introduced in response to what its supporters describe as a gap in the U.S. financial oversight system. Currently, incorporated entities can be formed in the U.S. with relatively little identifying personal information regarding the business' beneficial owner.
Courts considering legal challenges to the CTA have at times differed, with federal judges in Oregon and Virginia saying that the law is constitutional and judges in Texas and Alabama saying it is not. Currently stayed nationwide, the CTA has left banks and other businesses in a state of uncertainty. Financial institutions, which had broadly supported the law, could face disappointment if the law is invalidated.
Designed to centralize ownership data and simplify federal anti-money laundering efforts, the CTA was intended to ease banks' compliance burden by assisting in verifying the identities of their customers. However, its fate now depends on the courts. If struck down or delayed indefinitely, banks may not receive the regulatory relief they anticipated. In addition, corruption watchdogs warn delaying the rule could hurt the fight against financial crime.
Thomas Lee, Special Counsel at law firm Hughes Hubbard & Reed, was one of the lawyers involved in the first lawsuit against the CTA in November of 2022, National Small Business United v. Yellen, filed in the U.S. District Court for the Northern District of Alabama. Lee says the lawsuit was brought on behalf of small businesses who felt the CTA was government overreach.
"At the time, people were concerned about the Corporate Transparency Act, but no one had really brought litigation," he said. "Our view was the statute is completely unprecedented, because the federal government has never required this level of disclosure with respect to companies, LLCs, and other entities that are set up under state laws."
The NSBU levies three arguments against the CTA's constitutionality.
First, the suit argues that the law exceeds Congress's constitutional remit under the Commerce Clause, as it requires disclosure from entities for merely existing, regardless of whether or not they engage in transactions. Second, the statute violates individual liberties by compelling speech and enabling unreasonable searches, requiring owners to disclose sensitive information outside of a criminal context and grants database access to federal and foreign agencies. The suit says the law is also overly vague, particularly in requiring disclosing the identities of any individuals deemed to exert "substantial control" over a company.
"We filed the lawsuit in November 2022 [and] asked for expedited briefing," Lee said. "We didn't get a final decision out of the district court until March of 2024 and we won. So this was not a preliminary injunction, this was fully briefed — you win for all time, not just because this is an emergency situation."
In the March decision, the judge issued
"They made precisely the same arguments, those three baskets, buckets of arguments that I said. "Lo and behold, seven months later, they get the preliminary injunction out of the judge in Texas."
The judge made a noteworthy and consequential decision, acknowledging that while the plaintiffs initially sought relief for their members alone, the scope of the issue was significant given their large membership according to Malory Lea, Compensation, Employment, Pensions & Governance Associate at A&O Shearman.
"In the Texas Top Cop Shop case, the plaintiffs did not request a nationwide injunction," Lea said. "They sought an injunction only applicable to the plaintiffs. The district court, on its own accord, determined that there should be a nationwide injunction."
The Biden administration quickly appealed the ruling and succeeded initially. Weeks later, a motions panel of the Fifth Circuit Court of Appeals ruled to reinstate the CTA reporting rules. However, just days after that decision, the Fifth Circuit Court of Appeals reinstated the nationwide stay. Since courts in other jurisdictions have upheld the CTA, Supreme Court intervention to resolve the conflicting decisions seems likely.
Lee emphasized that the case in question is still in a preliminary injunction phase, meaning the courts have only reviewed emergency arguments and will fully consider the merits later.
"That case is in a preliminary injunction posture, which means that the briefing was all based on [the idea that,] 'This is an emergency, we think we have enough for you to stop it right now and let's wait until later to fully hear the merits.' But my case has been fully briefed," he said. "The government appealed to the 11th Circuit and we negotiated with the government for an expedited schedule, and … we are waiting for the 11th Circuit in our case to issue a decision any day now."
The Supreme Court has now been asked to decide whether to stay the injunction or allow it to remain while the case progresses. If the Supreme Court finds the district court overstepped in granting the injunction, the plaintiffs in the 11th circuit case would still be exempt from reporting requirements.
Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition, argues the rule should not be controversial. He describes it as a straightforward proposal supported by significant bipartisan backing during its development and passage.
"The rule was developed under a timely and deliberative process which has allowed all stakeholders the opportunity to make their views known, so nothing was really rushed," he said. "The law was passed at the beginning of 2021, and the process to roll out the rule makings provided plenty of opportunities for interested stakeholders to make their views known."
Zorka Milin, Policy Director at the FACT Coalition — a corporate transparency advocacy group — says it's really unfortunate there was this litigative back-and-forth.
"That created confusion and uncertainty that was unnecessary, now it's all eyes on the Supreme Court to see how they will rule," she said. "The ruling will be just on the limited question of the preliminary injunction and not on the broader legal questions around the law itself."
Internationally, the U.S. has faced pressure to strengthen its anti-money laundering framework. The Financial Action Task Force, a global policy-making and standard-setting body identified the absence of corporate ownership disclosure requirements as a significant vulnerability in U.S. law. Gary says the CTA simply aims to close this gap, aligning the U.S. with other G7 nations already requiring beneficial ownership disclosures.
"The US is one of the few G7 jurisdictions — and perhaps the only one left — that doesn't have a law requiring the disclosure of the beneficial owners of corporate entities," Gary said. "So it's clear that this was a big gap."
Anti-corruption advocates also dispute claims that the law is onerous, as business owners routinely provide similar personal information for routine services.
"A study conducted several years ago, before the law was enacted, found that getting a library card in all 50 states requires more information than creating a company," Gary said. "Similarly, a survey by the Small Business Majority in early 2024 found that most members reported the filing process was straightforward, often taking just 10 to 20 minutes."
Lee argues what makes the beneficial ownership collection different is that such information can be requested by federal law enforcement or foreign governments. At the same time, Lee — who was previously a U.S. naval cryptology officer — acknowledges that it could be a powerful tool for rooting out crime, if done correctly.
"It's an extremely powerful tool," Lee said. "You see an LLC pop up on some phishing transaction, you can push a button or do a couple keystrokes, and you can figure out that these 10 people might be on there. In the old days before the statute, you'd have to get a warrant, you'd have to actually do some gumshoe work to track that down and this makes it all possible at your fingertips."
Beneficial ownership reporting in the CTA was intended both to catch illicit shell company owners, but also to relieve banks from the onerous task of independently verifying beneficial ownership under existing anti-money laundering rules. By centralizing this data with Fincen, the law promised to reduce compliance costs and streamline AML efforts. Banks, which
Without the CTA, financial institutions may need to continue collecting ownership data themselves — a process many find burdensome and inconsistent across jurisdictions.
Milin said banks have a vested interest in having the law upheld.
"I think that the banks recognize that there is value in the government collecting more information about the commercial owners behind these entities," she said. "This is tricky and can be very time-consuming for banks to do that extra step, so really, it's only the government, — as has been the case in other jurisdictions — that is able to collect this information."
Sarah Grano, a spokesperson for the American Bankers Association, said the banking industry remains firmly committed to protecting the financial system and bank customers from bad actors, but that the implementation of the law has been inconsistent.
"We have called for Bank Secrecy Act reforms that allow banks to focus on real threats including fraud, drug and human trafficking, and money laundering, rather than diverting resources to much lower-risk activity," she said. "On a bipartisan basis, Congress has supported reforms — including the collection of business ownership information that will make it harder for criminals to hide behind shell businesses — but the implementation of those changes has been mixed at best. We are tracking the legal challenges and hoping for an outcome that provides greater clarity as well as enhanced protection for the financial system."
The Supreme Court could intervene to lift the stay on the CTA, which would allow Fincen to resume enforcement and set new compliance deadlines. However, the Court's timeline remains uncertain, as does its ultimate decision on the law's constitutionality playing out in the lower courts. Milin says she expects to hear from the Supreme Court very soon.
"[It's] a matter of days, because the brief deadline was on Friday [January 10]," she said. "And this is the Supreme Court's civil shadow docket or emergency docket, so we expect them to move quickly."
The consequences could impact not only financial oversight but also broader regulatory frameworks. A ruling that limits Congress's ability to regulate businesses could have far-reaching consequences beyond the CTA.
Whether the Trump administration would change the rollout of the CTA's implementing rules remains uncertain. Gary says that he anticipates no major changes, given that anti-money laundering priorities do not change that much between Presidents.
"I think there will be an understanding that America's adversaries — whether they're state or non-state actors — frequently use and abuse the financial secrecy that the U.S. offers to harm Americans and to harm U.S. strategic interests," he said. "I don't think that is going to necessarily change very much between the Biden administration and the Trump administration, but who those threat actors are — who are prioritized — may change."
Lee is a bit more skeptical that Trump will leave the rule unchanged. He says while President Trump can't toss the law aside, he has discretion over the rollout of regulation pursuant to the CTA. Trump originally vetoed the statute containing the CTA.
"Fincen will report to [Trump's] Treasury secretary," he said. "They have a lot of latitude as to how to go about the nuts and bolts of enforcement, and so I wouldn't be surprised at all if they say, 'Look, we're going to hold off on this until we have final word on its constitutionality.'"
