As of January 2024, a new reporting obligation came into effect for many U.S. entities as well as for foreign entities authorized to do business in the U.S., under the Corporate Transparency Act (CTA). As detailed in our previous client updates, the CTA requires many entities to report the identities of individuals who directly or indirectly possess “ownership” or “control” over them, further to criteria established under the CTA. The purpose of the CTA is to prevent the exploitation of U.S. companies for money laundering and criminal activities.
Recently, a federal court in the Eastern District of Texas issued a preliminary injunction, enforceable throughout the U.S., which enjoins enforcement of the CTA and freezes all deadlines under this law. The U.S. Department of Justice (DOJ) filed a notice of appeal against the temporary injunction, on behalf of the Department of the Treasury.
On December 23, 2024, the U.S. Fifth Circuit Court of Appeals in Texas Top Cop Shop, Inc. v. Garland, 5th Cir. Appeal No. 24-40792 (Dec. 23, 2024) granted the DOJ’s motion for a temporary stay of the district court’s order and injunction pending appeal. This means that reporting companies are once again obligated to submit beneficial ownership reports under the CTA. Further to the court’s decision, the administering regulator (FinCEN) published a statement regarding the reinstatement of the reporting obligations and extensions changes to the deadlines:
- Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
- Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies that qualify for certain disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
- Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
Although the outcome of the Texas Top Cop Shop case is still pending, along with several other cases that have challenged the CTA, it is important to note that the appellate court’s decision was based on the government making a ‘strong showing that it is likely to succeed on the merits in defending the CTA’s constitutionality’.
Accordingly, it is prudent for reporting entities to ensure they can meet the updated submission deadlines, while monitoring developments regarding the ongoing cases.
This memorandum contains general information only and does not constitute legal advice or a substitute for legal counsel. This memorandum is provided as a service to our clients, with the clarification that in any specific case, a separate discussion must be held regarding the matter at hand.
For any questions or clarifications, please contact our team responsible for this matter at the email address: CTA@shibolet.com.
