The CTA remains law, but Treasury says that domestic companies don’t have to provide beneficial ownership information.
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Remember the Corporate Transparency Act (CTA)? Earlier this year, the Treasury Department announced that U.S. businesses were not required to comply with the CTA’s beneficial ownership information (BOI) reporting requirements, effectively gutting the 2021 law. But there may be signs of life again after a U.S. Court of Appeals for the 11th Circuit upheld the CTA as constitutional.
The law, intended to make it harder for bad actors to hide their identities and ill-gotten gains through shell companies or opaque corporate structures, pulled in companies and their owners. The information that was required to be reported includes details about the owners, including the name, date of birth, address, and a scanned image of an identifying document like a driver’s license or passport, from each so-called “beneficial owner.” Generally, the same information must be reported for a company applicant—typically the person who helped organize the company (most commonly, a corporate formation company or a lawyer).
Treasury’s announcement that domestic businesses did not have to comply with those requirements exempted about 99% of businesses that would otherwise have been impacted.
But the announcement didn’t change one big thing: The law is still on the books. Despite the Treasury’s assertions, the executive branch cannot simply overturn laws passed by Congress. It can, however, choose not to aggressively enforce a law (as we have seen in other contexts, like the criminalization of cannabis). This can lead to complications (again, as with cannabis) since a future administration could opt into enforcement.
Background
Congress passed the CTA after years of discussion over the problems created by anonymous shell companies. It was part of the National Defense Authorization Act (NDAA) for Fiscal Year 2021 (if the term sounds familiar, the NDAA is the annual law passed by Congress that sets defense policy and authorizes funding levels and programs for the U.S. military and national security activities—one just passed this week). In his first term, President Trump vetoed that law for reasons unrelated to the CTA, and Congress overrode his veto in January of 2021, before President Joe Biden took office.
The Treasury officially began accepting beneficial ownership information (BOI) reports on January 1, 2024.
For purposes of the CTA (as the law was written), reporting companies can be domestic companies created under the laws of a state or Indian tribe, or entities formed under the law of a foreign country that are registered to do business in any state or tribal jurisdiction. This can include limited partnerships, limited liability partnerships (LLPs), business trusts, LLCs (including SMLLCs), and corporations—typically, any entity you would register with the state.
There are several exemptions—in fact, 23 types of entities are exempt from the reporting requirements. These entities include publicly traded companies, nonprofits, and certain large operating companies.
The penalties for non-compliance are harsh. A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 per day the violation continues, as well as criminal penalties of up to two years’ imprisonment and a fine of up to $10,000.
Under the law, approximately 32 million companies were subject to the CTA in 2024, the first year it took effect.
Earlier Court Rulings
Months after the CTA reporting requirements began, National Small Business United (also known as the National Small Business Association, or NSBA) and Isaac Winkles, an Alabama business owner, filed suit against Janet Yellen in her official capacity (at that time) as the Secretary of the U.S. Department of the Treasury, the Treasury Department, and Himamauli Das, the Acting Director of FinCEN, which is charged with carrying out the CTA. The NSBA alleged that the federal government is claiming powers over entity formation that traditionally belong to the states. This, they argued, violates the 9th and 10th Amendments and the constitutional principles of federalism.
On March 1, 2024, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, found the CTA unconstitutional “because it exceeds the Constitution’s limits on Congress’ power.”
It was the first of a flurry of lawsuits targeting the CTA nationwide—with mixed results. At one point, appeals from district court cases were pending in four different circuit courts (the 4th, 5th, 9th, and 11th). The matter was even heard at the Supreme Court (SCOTUS addressed emergency applications for a stay of the injunctions, and not the merits of the CTA).
The NSBA, which was initially successful in seeking to have the CTA declared unconstitutional, found itself on the opposite side of the most recent appellate ruling. The 11th Circuit Court of Appeals reversed the lower court’s decision that found the CTA unconstitutional.
NSBU v. U.S. Department of the Treasury
The question raised in the appeal was whether the CTA—a federal law requiring corporations to report information about their owners—is constitutional.
“To be constitutional,” Circuit Judge Brasher wrote, “every federal law must, first, be consistent with one of Congress’s enumerated powers and, second, not violate any of the Constitution’s individual rights guarantees.”
The court found that “by effectively prohibiting anonymous business dealings, the CTA facially regulates economic activities having a substantial aggregate impact on interstate commerce. Moreover, as a uniform and limited reporting requirement, the CTA does not facially violate the Fourth Amendment.”
That’s a mouthful. But the court is saying that Congress could enact the CTA because preventing companies from operating anonymously affects real economic activity that, taken as a whole, clearly impacts business and money flows across state lines. And because the law simply requires companies to file basic ownership information in the same way for everyone—without searches, raids, or discretionary targeting—it does not, on its face, violate people’s constitutional right against unreasonable searches.
The court’s reasoning closely tracked what Congress found when it passed the CTA. At the time, lawmakers concluded that the widespread availability of U.S. shell and front companies—with little to no ownership transparency—made the United States one of the easiest places in the world to hide illicit financial activity. In upholding the law, the 11th Circuit agreed that requiring beneficial ownership reporting is a constitutional exercise of Congress’s power under the Commerce Clause because it regulates economic activity that directly affects interstate commerce, particularly the flow of illicit funds through the U.S. financial system. The court also rejected claims that the CTA violates Fourth Amendment protections, describing the law as a narrowly tailored, uniform reporting requirement that leaves no room for arbitrary or discretionary enforcement.
Reactions
Transparency International U.S. (TI US) submitted an amicus curiae brief in the case on behalf of itself, the Foundation for Defense of Democracies (FDD), and national security expert Nate Sibley from the Hudson Institute urging the court to uphold the CTA as a critical tool for protecting U.S. national security, countering corruption, and preventing money laundering, sanctions evasion, and other illicit financial activity. Following the ruling, Scott Greytak, Deputy Executive Director for TI US, said, “The constitutional case for corporate secrecy has collapsed under appellate scrutiny. The Eleventh Circuit rejected the challengers’ claims and put the Corporate Transparency Act back on firm legal footing. While these questions will continue to move through other courts, today’s message from the highest court yet to review the CTA was unmistakable: The Constitution is not a shield for illicit actors to perpetrate their crimes through anonymous companies.”
Sibley criticized Treasury’s decision to exempt over 99 percent of companies, calling it a “policy choice” and adding, “For years, anonymous companies have been a legal invisibility cloak for money launderers, kleptocrats, drug traffickers, and sanctions evaders. In its decision today, the Eleventh Circuit didn’t indulge the myth that this secrecy is benign. It recognized what we laid out in our amicus brief: When transparency disappears, you don’t get privacy—you get crime.”
NSBA President and CEO Todd McCracken also issued a statement, noting in part, “Obviously, we are very disappointed by this ruling and its impact on small businesses. While small businesses still remain safe today against the unfair CTA burden, it is now imperative that Congress pass legislation that permanently repeals the CTA.”
He added, “We have known from the start that the only way to stop the CTA is for Congress to act. We fully support the goal of stemming money laundering – but we cannot allow the federal government to charge small businesses with the enforcement of it, which is exactly what the CTA will do.”
What’s Next
For now, the ruling is a victory for proponents of corporate transparency and financial crime enforcement, though it’s not unlikely that the matter could end up in front of another court—or at the Supreme Court.
Businesses and advisors are right to be concerned about what the ruling means in the long term. That answer will depend not only on the courts but also on how the law is ultimately implemented and enforced. Remember, no matter what Treasury says about it now, the law remains on the books. The only way that will change is if Congress takes steps to reverse it, something it’s been unwilling to do for years.
