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Author: Isabel Peraza

The U.S. Department of the Treasury recently announced a significant shift to substantially reduce the scope of its enforcement of the Corporate Transparency Act (31 U.S.C. § 5336) (“CTA”). This enforcement change comes amid growing attention to how the law affects businesses’ compliance obligations.

The primary goal of the CTA was to combat money laundering, terrorist financing, and other illicit activities by requiring certain corporations and limited liability companies to report information about their “beneficial owners” (the individuals who ultimately own or control the companies). This information was to be submitted to the Financial Crimes Enforcement Network (“FinCEN”) at the U.S. Department of the Treasury, where it would be held in a secure, non-public database accessible only to law enforcement and certain regulatory entities.

The CTA was enacted in an unusual way. It passed by the house in October 2019, mostly (though not entirely) along party lines, with Democrats generally supporting it and Republicans against it.[1] Though the CTA never received a vote in the senate as a standalone bill, it was later incorporated into the National Defense Authorization Act for Fiscal Year 2021, which was passed by both chambers and signed into law on January 1, 2021.

As the voting record suggests, the CTA was controversial from the outset. Opponents contended that its stringent reporting requirements placed an undue burden on small businesses, many of which, they argued, might not have the resources to navigate the complex legal and administrative obligations.[2] Meanwhile, privacy advocates voiced concerns over the centralized collection of sensitive ownership data, warning of potential risks such as data breaches and misuse.[3] Further, other critics pointed to potential constitutional problems with the law, questioning whether the federal government had the authority to mandate such disclosures from privately held entities not involved in public securities trading.

Legal challenges to the law arose almost immediately, with lawsuits filed in federal courts in Alabama, Maine, Ohio, Oregon, and Texas against the Treasury Department.[4] In Alabama, the plaintiff argued that the CTA’s mandatory disclosure requirements exceed Congress’ authority under Article I of the Constitution and violated the First, Fourth, Fifth, Ninth, and Tenth Amendments.[5] In March 2024 a federal court in the Northern District Alabama court became the first to strike down the CTA as unconstitutional, stating that it “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’ policy goals.”[6] The court emphasized that the law converts traditionally local conduct (i.e., corporate formation) into “a matter for federal enforcement, involving a substantial extension of federal police resources.”[7]

The federal government immediately appealed to the Eleventh Circuit.[8] But after the new presidential administration took office, while that appeal was still pending, the federal government announced in March 2025 that it would suspend enforcement of the CTA.[9] Specifically, it stated that penalties associated with the beneficial ownership reporting rule would not be enforced, and future rule changes would narrow the scope of the law to foreign reporting companies only. FinCEN then promulgated an interim final rule that requires only entities previously defined as “foreign reporting companies” to report beneficial ownership information under the CTA. The policy and new rule does not, however, amount to a repeal of the law, and a future Treasury Department could change its approach to enforcement. While much of the litigation surrounding the enforcement of the CTA has come to a pause, several of the appeals are ongoing, including the appeal in the Eleventh Circuit, in which the Trump Administration recently submitted additional briefing defending the law in light of the Treasury Department’s narrowed enforcement policy. Should the Trump Administration, or a future administration, change its approach to CTA enforcement, otherwise halted litigation will likely come back to life.

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About the Author

Isabel Peraza, Associate

Isabel is a litigator, whose practice focuses on complex commercial litigation, with a particular emphasis on intellectual property litigation. Follow her on LinkedIn here.

[1] Corporate Transparency Act of 2019, H.R. 2513, 116th Cong. (2010).

[2] As just one example of the complexity of the law, the CTA requires reporting companies to comply with a list of obligations, but it also contains no less than 23 exemptions to what qualifies as a reporting company. See 31 U.S.C. § 5336(a)(11)(B); 31 C.F.R. § 1010.380(c)(2).

[3] The CTA requires the collection of Personally Identifying Information, including scanned identification documents. 31 C.F.R. § 1010.380(b)(1)(ii). Maintaining this kind of information securely can itself be very burdensome on businesses.

[4] Nat’l Small Bus. United v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. Nov. 15, 2022); Boyle v. Bessent, No. 2:24-cv-00081-SDN (D. Me. Mar. 15, 2024); Robert J. Gargasz Co. v. Yellen, No. 1:23-cv-02468 (N.D. Ohio Dec. 29, 2023); Firestone, et al.  v. Yellen, No. 3:24-cv-1034-SI (D. Or.  June 27, 2024); Flowers Title Cos. LLC v. Bessent, No. 6:25-cv-00127 (E.D. Tex. Apr. 14, 2025).

[5] Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260, 1267 (N.D. Ala. 2024).

[6] Id.

[7] Id. at 1275.

[8] Nat’l Small Bus. United v. U.S. Dep’t of the Treasury No. 24-10736 (11th Cir.).

[9] Press Release, U.S. Department of the Treasury, Treasury Department Announces Suspension of Enforcement of Corporate Transparency Act Against U.S. Citizens and Domestic Reporting Companies (Mar. 2, 2025) (available at https://home.treasury.gov/news/press-releases/sb0038).