The U.S. Supreme Court has reinstated the Corporate Transparency Act (CTA), a federal law mandating that corporate entities disclose their true beneficial owners to the U.S. Treasury Department. This decision lifts a nationwide injunction previously issued by a Texas federal judge, allowing the law’s enforcement to proceed.
Background of the Corporate Transparency Act
Enacted in 2021, the CTA requires corporations and limited liability companies (LLCs) to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department dedicated to combating financial crimes. A beneficial owner is defined as an individual who directly or indirectly owns or controls a company. The law aims to prevent the misuse of anonymous shell companies for illicit activities such as money laundering, tax evasion, and financing terrorism.
Legal Challenges and Injunction
The CTA faced legal challenges from small business groups, including the National Federation of Independent Business and the conservative Center for Individual Rights. These groups argued that the law exceeded Congress’s constitutional authority and infringed upon state sovereignty. In December 2024, U.S. District Judge Amos Mazzant in Texas issued a nationwide injunction, halting the enforcement of the CTA. Judge Mazzant contended that Congress lacked the authority under the Commerce Clause and the Necessary and Proper Clause to impose such reporting requirements, describing the statute as “quasi-Orwellian.”
Supreme Court’s Decision
In response to the injunction, the Biden administration, through Solicitor General Elizabeth Prelogar, petitioned the Supreme Court to stay the lower court’s ruling. The administration argued that the CTA’s reporting requirements are vital for preventing, detecting, and prosecuting financial crimes and that Congress possesses the authority to enact such legislation under the Constitution’s Commerce Clause. On January 23, 2025, the Supreme Court granted the administration’s request, allowing the CTA to take effect while legal proceedings continue.
Implications for Small Businesses
The reinstatement of the CTA means that owners and part-owners of an estimated 32.6 million small businesses must now register personal information with FinCEN. The required information includes photo identification and home addresses. Non-compliance can result in civil and criminal penalties. The National Small Business Association has expressed concerns about the burden this places on small businesses and has called for a delay and repeal of the CTA. Karen Kerrigan, President and CEO of the Small Business & Entrepreneurship Council, emphasized the ongoing confusion and urged for immediate penalty relief for late filers.
Support for the CTA
Advocates for the CTA argue that the law addresses significant regulatory deficiencies in the U.S. financial system. Treasury Secretary Janet Yellen stated that the CTA’s reporting requirements are crucial for preventing financial crimes and enhancing transparency. Ian Gary, Executive Director of the FACT Coalition, a nonprofit promoting corporate transparency, praised the Supreme Court’s decision, noting that it will aid law enforcement in cracking down on criminals who exploit corporate secrecy.
Next Steps
With the Supreme Court’s ruling, the CTA’s reporting requirements are now in effect. Businesses subject to the law must comply by submitting the necessary information to FinCEN. The legal challenges to the CTA will continue to proceed through the courts, but the law remains enforceable during this time. The outcome of these legal proceedings could have significant implications for corporate transparency and the regulation of financial crimes in the United States.
