My wife and kids like roller coasters. I do not. Up and down and all around? No thanks. Sometimes, the law does that to us too. Laws are proposed, debated, passed, enjoined, repealed or changed all the time. Up and down and all around. So it is with the roller coaster ride that is the Corporate Transparency Act (CTA).
In my November 2024 column, I wrote about the CTA – a federal statute intended to combat money laundering, tax evasion, and other illicit financial activities by increasing transparency in corporate ownership. These are noble goals – which, as a former military and federal prosecutor, I know are important to combat white collar crime. However, in our democracy, we hold regular elections and those elections often result in policy changes – even on existing laws (albeit very new) like the CTA.
Administration Change Creates Chaos
Some regard the CTA as too onerous and an example of hyper-regulation; others regard the risk of money laundering and organized crime as too high to do nothing. Regardless, what was originally a bipartisan effort has now become a back-and-forth battle in the courts and at the U.S. Treasury Department.
Under the new administration, the CTA’s beneficial ownership reporting requirements were put on hold, reinstated, and put on hold again. The Treasury Department said it would impose fines or penalties for failure to file the reports originally mandated by the CTA, and it would be further extending the reporting deadline and limiting the reporting requirements only to foreign entities.
Cases contesting the CTA are pending in several federal courts. Cases in the 5th and 11th U.S. Circuit Courts of Appeals are still adapting to policy and enforcement changes periodically announced by the administration.
Meanwhile, 12 state attorneys general have filed an amicus brief in the 5th Circuit case, arguing that the CTA usurps states’ rights, including their historical regulatory power over corporations. These issues, ultimately, may end up before the U.S. Supreme Court.
Will Congress Step in?
While the litigation fight will continue for months or years, some in Congress want to reinstate the law or at least ensure that the administration enforces it as intended. There is a bipartisan effort in Congress to hold the Treasury Department to the CTA’s statutory requirements.
Applying the law only to foreign entities would renders it useless – because a foreign citizen would need to form a U.S. entity to perpetuate a criminal scheme using the cover of a corporate shell. The law enforcement and national security purposes of the CTA are not fulfilled without ubiquitous application – meaning all entities who want to do business in this country should have some form of oversight.
The Impact on Your Business
In the short term, the Department of the Treasury’s forthcoming rules will need to include clear guidance on which entities are exempt from the reporting requirements and whether the approximately 10 million reports already filed will be held by the government, destroyed or something else.
If your company has already filed a report, what will happen to your data? If you did not file a report, and have only domestic ownership, will you ever have to file one? If your company is a foreign entity, will it be required to file in accordance with the original rules of the CTA or will the Treasury Department refuse to implement those rules or seeks to change them altogether?
Hopefully, answers to these questions will evolve in the coming months. For now, the CTA is not being strictly enforced, corporate ownership remains opaque, and the criminal conduct that Congress originally intended to mitigate remains an ongoing risk.
