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A controversial US anti-money laundering (AM) law has been reinstated by the Supreme Court, but compliance remains "voluntary" while further appeals are adjudicated.
On Thursday (January 23), the Supreme Court granted a government motion to stay a nationwide injunction against the enforcement of the Corporate Transparency Act (CTA).
This means that a stay that was placed on the law in December last year by Amos Mazzant, a federal judge in Texas, is no longer valid.
However, due to a separate and still-active nationwide order against the CTA issued by a different Texas judge, companies are not currently required to file beneficial ownership information under the CTA.
The Financial Crimes Enforcement Network (FinCEN), which would be the recipient of the beneficial ownership information, therefore confirmed to firms that compliance with the law remains “voluntary” for now.
As such, firms that do not file their beneficial ownership information to FinCEN will not be subject to liability.
Justice Neil Gorsuch, concurring with the decision, noted that the Supreme Court should now go “a step further” and “resolve definitively" the question of whether a district court may issue a universal injunction against federal legislation.
As covered by Vixio, Judge Mazzant blocked the CTA on a federal level on the basis that one of the trade associations that appealed against the law represented members nationwide.
However, the government, as noted in its appeal to the Supreme Court, objects to the issuance of “universal” injunctive relief via a single district court judge.
Justice Ketanji Brown Jackson, dissenting, said she does not believe that the case demonstrates "sufficient exigency” to warrant a Supreme Court intervention.
“However likely the government’s success on the merits may be, in my view, emergency relief is not appropriate,” she said.
“The government has provided no indication that injury of a more serious or significant nature would result if the Act’s implementation is further delayed while the litigation proceeds in the lower courts.
“I would therefore deny the application and permit the appellate process to run its course.”
The National Federation of Independent Business (NFIB), whose appeal allowed Judge Mazzant to issue a universal injunction, said it was disappointed by the court’s decision.
“Today’s decision is a setback for small business,” said Beth Milito, vice president and executive director of NFIB’s Small Business Legal Center.
“Hopefully, Treasury recognises the chaos that will ensue by requiring 32m small businesses to imminently file their BOI information while the constitutionality of the reporting requirements is determined.”
CTA saga continues
The CTA was enacted by Congress in 2021 in an effort to prevent the use of US companies in financial crime.
The deadline to comply with its reporting requirements was initially set at January 1, 2025, but the law has been subject to continuous lawsuits and counter-lawsuits from the private sector and government.
Under the CTA, all companies with up to 20 employees and $5m in revenue are required to report information about their beneficial owners to FinCEN.
Beneficial owners are defined as individuals who exercise substantial control over the company or who own or control 25 percent of its ownership interests.
These individuals are required to report their names, dates of birth, addresses and unique identifying numbers (e.g., driver’s licence or passport numbers) to FinCEN.
Failure to comply with the reporting requirements can result in fines of up to $10,000 per violation, felony charges and up to two years in prison.
As covered by Vixio, the law has proven unpopular among small businesses, although many are still unaware of its existence.
At the end of last year, for example, FinCEN disclosed that only 10 percent of covered entities had filed their beneficial ownership information as required.
In the meantime, several Republican lawmakers have filed bills to repeal the CTA, including Senators Jim Risch (R-ID), Tommy Tuberville (R-AL) and Mike Lee (R-UT).
