Corporate Transparency Act Updates

What is the Corporate Transparency Act?

Enacted as part of the Anti-Money Laundering Act of 2020, the Corporate Transparency Act (CTA) requires certain business entities to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).¹ Beneficial owners include individuals who directly or indirectly own or control at least 25% of a company or who exercise substantial control over it.² The CTA aims to increase transparency and prevent bad actors from using anonymous entities for illicit activities, such as money laundering and terrorism financing.³

Recent Legal Challenges: Conflicting Court Orders and the Current Status

The CTA’s reporting requirements, initially scheduled to take effect on January 1, 2024, faced significant legal challenges in late 2024. A federal judge in the Eastern District of Texas issued a preliminary injunction in Texas Top Cop Shop, Inc. v. Garland (the “Top Cop Case”), blocking enforcement of the law due to concerns over its constitutionality and its impact on small businesses.⁴

On January 23, 2025, the Supreme Court of the United States (SCOTUS) lifted the nationwide injunction imposed by the Eastern District of Texas in the Top Cop Case.⁵ SCOTUS’s decision allows FinCEN to enforce the CTA until the Fifth Circuit rules on the U.S. Government’s appeal of the Texas District Court’s order (scheduled to be heard on March 25, 2025) and until SCOTUS issues any ruling on a subsequent appeal from the Fifth Circuit’s decision.⁶

However, FinCEN announced on January 24, 2025, that a separate nationwide injunction remains in force in a different case, Smith v. U.S. Department of the Treasury (the “Smith Order”), meaning that reporting companies are not currently required to file BOI with FinCEN—despite the Supreme Court’s action in the Top Cop Case.⁷ Reporting companies are not subject to liability if they fail to file BOI reports while the Smith Order remains in place, although they may voluntarily submit BOI reports.

All Reporting Companies should continue to monitor the outcomes in both the Fifth Circuit appeal of the Top Cop Case and the separate Eleventh Circuit appeal in National Small Business United v. Department of the Treasury, where the CTA’s constitutionality is also at issue.⁸ A decision in the Eleventh Circuit is anticipated before the Fifth Circuit issues its ruling. If these courts—or a subsequent SCOTUS decision—find the CTA constitutional, companies will need to be prepared to file BOI reports promptly.

Current Compliance Recommendations for Businesses

Although the enforcement of the CTA’s reporting requirements is temporarily halted by the Smith Order, businesses should take proactive steps to prepare for future compliance, particularly if the Smith Order is lifted or modified. First, conducting a beneficial ownership audit is crucial. This involves identifying all individuals who qualify as beneficial owners under the CTA, including those with direct or indirect ownership of 25% or more, as well as individuals who exercise substantial control.⁹

Second, businesses should establish internal procedures for collecting, verifying, and securely storing beneficial ownership information. These systems should be capable of rapid activation if the reporting requirements resume.¹⁰

Third, companies should closely monitor court decisions and announcements from FinCEN to stay current on any changes or guidance regarding the CTA. The status of the Smith Order and the pending appeals in both the Fifth and Eleventh Circuits will be key indicators of when the CTA’s reporting obligations might go into effect.¹¹

Finally, seeking legal guidance is recommended due to the complexity and evolving nature of the CTA. Legal counsel can help ensure readiness for compliance once the legal situation is resolved.¹²

Revisiting the Privacy Implications of BOI Reporting

As discussed in my previous article, The Dangers of the Corporate Transparency Act & BOI Reporting Requirements,¹³ collecting and reporting BOI raises serious privacy concerns. While the CTA aims to enhance transparency, critics fear the centralized collection of sensitive ownership information may increase the risk of data breaches or misuse.¹⁴

Businesses should implement rigorous cybersecurity measures and restrict access to BOI within their organizations.¹⁵ Encrypting sensitive data and ensuring that only authorized personnel can access BOI are crucial strategies for minimizing privacy and security risks.

Key Implications for Tennessee Businesses

Tennessee’s vibrant business community, composed predominantly of small and mid-sized enterprises, will likely feel the CTA’s impact once reporting requirements resume.¹⁶ Industries such as real estate, construction, and manufacturing—often marked by complex ownership structures—may face particular challenges in accurately identifying all beneficial owners.¹⁷ Early preparation will reduce delays and complications once the law is enforceable.