A U.S. appeals court has temporarily halted a federal mandate requiring corporations to disclose the identities of their beneficial owners, delaying a significant anti-money laundering initiative just weeks before its enforcement deadline.
The 5th U.S. Circuit Court of Appeals, based in New Orleans, reinstated a nationwide injunction against the Corporate Transparency Act (CTA), initially issued by a Texas federal judge who ruled the law unconstitutional. The law, enacted in 2021, mandates that corporations and limited liability companies (LLCs) report ownership details to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The appellate court’s decision to pause enforcement aims to maintain “the constitutional status quo” as a broader panel reviews the underlying arguments. This review is set for March 25, leaving many corporations uncertain about their reporting obligations ahead of the original January 13 deadline.
In response to the injunction, FinCEN announced that companies are not required to file beneficial ownership reports but may voluntarily do so. The National Federation of Independent Business and several small businesses challenged the law, arguing it imposes undue surveillance and violates constitutional principles.
The Corporate Transparency Act was designed to combat illicit financial activities, such as money laundering, by addressing loopholes allowing criminals to exploit anonymous corporate structures. However, critics, including U.S. District Judge Amos Mazzant, have labeled the law as overly invasive, calling it a “quasi-Orwellian statute” that infringes on states’ rights under the Tenth Amendment.
The debate over the law underscores the tension between enhancing financial transparency and preserving constitutional boundaries, with both sides eagerly awaiting the court’s final ruling.
