FinCEN’s Ownership Reporting Rule Delayed Amid Court Ruling

A court ruling in Texas earlier this month has delayed an ownership reporting requirement mandated by the Corporate Transparency Act. That is not likely to be a reason to rejoice because a future court could uphold the requirement.

Under the act, which went into effect Jan. 1, businesses were supposed to comply with the Beneficial Ownership Reporting rule and file the reports with the Financial Crimes Enforcement Network, or FinCEN. That was halted when a federal district court in Texas issued a nationwide preliminary injunction Dec. 3 against the enforcement of the ownership reporting rule, says Ashley Reeve Basnett, managing member at Reeve Basnett LLC, a Corsicana, Texas-based law firm. The case is Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.).

“As a result, the Department of Treasury and Financial Crimes Enforcement Network (FinCEN) is prohibited from enforcing beneficial ownership reporting requirements, and a stay has been issued for the January 1, 2025, reporting deadline for all reporting companies,” Basnett tells Digital Transactions News via email. Two days later, the U.S. Department of Justice, on behalf of the Treasury Department, filed an appeal of the injunction with the U.S. Court of Appeals for the Fifth Circuit, she says.

That was followed with an emergency motion by Justice on Dec. 11 to stay the injunction and a request to make a ruling on that motion by Dec. 27. For now, the ownership reporting requirement is on hold. Still, acquirers and merchant sales companies shouldn’t expect this to be permanent, just yet.

“Because there is the possibility that a later court decision could uphold the underlying law, payments companies have to continue to prepare to implement the law,” says Scott Talbott, executive vice president at the Electronic Transactions Association, which represents the acquiring industry. “Prepare for the worst but hope for the best.”

Basnett, too, suggests being ready for either scenario. “Based on the reasoning for the U.S. District Court for the Eastern District of Texas’s ruling and the impending deadlines that would be in place if the injunction is stayed, we believe that the odds of a stay of the injunction unlikely.  Regardless, acquirers should still be prepared to file their BOIR if such stay is granted given the limited time available to comply,” she says.

In a statement FinCEN acknowledges the latest court ruling and says entities will not be subject to liability if they fail to file the ownership report.

It stands by the utility of the rule and the Corporate Transparency Act. “The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering,” its statement says. “The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.”

FinCEN also says other district courts have denied request to enjoin the CTA, ruling in favor of the Treasury Department. “The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.”