U.S. Treasury Appeals Court Ruling on New Corporate Transparency Law (Beneficial Ownership Information Reporting)

A recent court ruling has temporarily stopped a U.S. government plan aimed at making businesses more transparent. The law, called the Corporate Transparency Act (CTA), was designed to prevent criminals from hiding illegal activities using anonymous companies. However, a Texas judge, Amos Mazzant, decided to pause its enforcement, saying the law might not be constitutional.

What’s the Corporate Transparency Act (CTA)?

The CTA is a law that requires small businesses and certain corporate entities to report who owns them. This information, called “beneficial ownership,” would help the government track down criminals using fake companies for activities like money laundering and human trafficking. Large corporations and publicly traded companies don’t have to report under this law, but small businesses, including limited liability companies (LLCs), do.

Why Is the Law on Hold?

Judge Mazzant issued an injunction because he believes the law may invade people’s privacy and overstep constitutional limits. He referred to the reporting requirements as “quasi-Orwellian,” a reference to government overreach in George Orwell’s famous novel 1984.

Interestingly, the judge’s decision goes further than expected. The plaintiffs in this case, including the National Federation of Independent Business (NFIB), only asked the court to block the law for their members. But Mazzant stopped the Treasury Department from enforcing the law at all while he considers both sides’ arguments.

The Reaction: Confusion and Debate

The ruling has caused confusion among the more than 32 million businesses expected to comply with the law by January 1, 2025. As of August, only five million businesses had registered their ownership information. Some lawyers are advising their clients to keep preparing for the deadline just in case the ruling is reversed.

“This ruling is a huge victory for small businesses,” said Beth Milito, a lawyer for the NFIB. “The reporting requirements are an unnecessary invasion of privacy and a waste of time.”

But anticorruption advocates disagree. “This decision is a gift to criminals who rely on anonymous companies to hide their crimes,” said Ian Gary of the FACT Coalition, a group that fights financial crime.

What Happens Next?

The U.S. Treasury Department has filed an appeal, meaning it is asking a higher court to overturn the Texas judge’s decision. It could take weeks or months for the appeals court to make a decision. Meanwhile, another legal challenge to the law, filed in Alabama earlier this year, is still being considered by a federal appeals court.

Alan Winston Granwell, a lawyer at Holland & Knight, says his firm is advising clients to stay ready. “If the ruling is reversed, companies that haven’t prepared will have a hard time meeting the January deadline.”

What This Means for Businesses

For now, small businesses are left wondering whether they should comply or wait for the courts to decide. The debate highlights the challenges of balancing privacy rights with efforts to stop financial crime.