On Dec. 31, the Department of Justice (DOJ) asked the U.S. Supreme Court to issue a stay of the preliminary injunction that has halted the Corporate Transparency Act’s (CTA) enforcement nationwide under which the reporting of beneficial ownership information (BOI) is required. A Texas federal court issued the injunction in the case of Texas Top Cop Shop, Inc. et al. vs. Garland (U.S. Attorney General).
The DOJ defended its request for a stay of the Texas district court’s injunction by saying: "The Act’s reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism. The requirements therefore fall comfortably within Congress’s authority under the Commerce Clause to regulate economic activities (here, the anonymous operation of business entities) that substantially affect interstate commerce."
The DOJ also said that the requirements "are also necessary and proper to effectuate several of Congress’s enumerated powers, including the power to regulate interstate and foreign commerce and to collect taxes, as well as Congress’s powers with respect to foreign affairs. Even if there might be outlier circumstances in which the Act could be thought to exceed Congress’s powers, the Act complies with the Constitution in most of its applications, which suffices to defeat
respondents’ facial challenge."
The DOJ pointed out that even though the respondents had sought relief only on their own behalf, the court entered a universal injunction that enjoined the CTA's enforcement even against non-parties. The DOJ said that "at a minimum, this Court should narrow the district court’s vastly overbroad injunction."
The DOJ emphasized the importance of its request as the nationwide injunction "prevents the government from executing a duly enacted Act of Congress, impedes efforts to prevent financial crime and protect national security, undermines the United States’ ability to press other countries to improve their own anti-money laundering regimes, and severely disrupts the ongoing implementation of the Act." On the other hand, the DOJ said that the CTA "imposes only minimal burdens on respondents."
Justice Samuel Alito has set a Jan. 10 deadline for the plaintiffs to respond.
Meanwhile, the AICPA stated that. while the injunction remains and BOI filing is voluntary, it "advises gathering required information and being ready to file if the injunction is lifted."
According to the Journal of Accountancy, the Financial Crimes Enforcement Network, which enforces the CTA, has projected that more than 32 million reporting firms will be required to file BOI reports.
Looking ahead, Louis Vlahos, a partner at Rivkin Radler LLP, wrote that, in the past few weeks, the Texas Top Cop Shop case has been "front and center" in the various lawsuits initiated by companies and business organizations challenging the CTA as unconstitutional. "Although this is understandable—especially so after the DOJ brought the Supreme Court into the mix on New Year’s Eve—we must not lose sight of the fact that any day now the Eleventh Circuit may render an opinion in the [National Small Business United] case." The case challenged the CTA in the U.S. District Court for the Northern District of Alabama and claimed that the CTA went beyond Congress’ purview and was unconstitutional.
"One has to wonder what effect that Circuit’s opinion would have upon the Supreme Court’s response to the DOJ’s request for a stay of the nationwide preliminary injunction issued by the District Court in the Texas Top Cop Shop case, or upon the Fifth Circuit’s ultimate disposition of that case," Vlahos noted.
He added, "One also has to wonder whether the new Trump Administration and this Congress will try to repeal the Act."