The Uncertain Future of the Corporate Transparency Act: How a Firearm Shop in Texas is Challenging Privacy Law

The Corporate Transparency Act (“CTA” or “the Act”) is back in force after the Supreme Court granted the Justice Department’s (“DOJ”) application to stay a nationwide enjoinment of the act. (John Woolley & Tristan Navera, Bloomberg). The stay comes during the case Texas Top Cop Shop, Inc. v. Garland where a Federal District Court in Texas granted the plaintiff’s motion for preliminary injunction against the Act. Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, 2024 WL 4953814 (E.D. Tex., Dec. 3, 2024). This article examines the background and consequences of the CTA as well as political factors that may influence the Act’s future.

The CTA was passed in 2019 to combat issues such as money laundering and tax fraud. (Congress). The Financial Crimes Enforcement Network (“FinCEN”) issued a final rule in 2022 to enforce Section 6403 of the CTA which amended the Bank Secrecy Act by imposing requirements for corporations to disclose beneficial owner information (BOI). (Federal Register). FinCEN claims that by collecting data on beneficial owners of businesses, law enforcement can more readily combat businesses engaged in nefarious activity such as evading sanctions. Id. For example, the DOJ had Spanish authorities seize a Russian oligarch’s yacht. (DOJ) The oligarch was funneling payments through shell companies to avoid scrutiny from US banks, violating US sanctions on money laundering and tax fraud. Id. This is the type of investigation where law enforcement could benefit from a streamlined database of BOI. (Federal Register).

Though some commenters agreed that a database of this information could help fight these injustices, others were skeptical of the Act for its complexity and how it could disproportionately burden small business owners with the filing. Id. FinCEN considered, but did not finalize, alternatives to the rule that could account for these interests. Id. One alternative would be to use the Customer Due Diligence (“CDD”) Rule definition of a “beneficial owner.” Id. Under this definition, a beneficial owner must have substantial control over the company or hold at least 25 percent equity in the company. Id. Despite its potential to lower reporting costs for companies, this approach was rejected since it would limit the amount of beneficial owners reporting. Id.

Beneficial owners of a business include its founders or someone with control or ownership of the business. (Federal Register). The CTA requires businesses to disclose information like names, dates of birth, and street address. (FinCEN; GovInfo). To comply, parties applying to establish a new corporation or LLC must file this information with FinCEN. (FinCEN). FinCEN set a deadline for businesses to file before 2025, but in the wake of challenges to the Act’s constitutionality, FinCEN shifted the deadline back to March 21, 2025. (John Woolley &Tristan Navera, Bloomberg; FinCEN).

Texas Cop Shop, Inc., the National Federation of Independent Business (“NFIB”), and four other plaintiffs filed a Motion for Preliminary Injunction to keep the federal government from enforcing the Act and its regulations against their respective businesses. Texas Top Cop Shop, Inc., 2024 WL 4953814. These plaintiffs asserted that the CTA violated their constitutional rights under the First, Fourth, Ninth, and Tenth Amendment since they were forced to disclose sensitive information to the government to avoid penalties. Id. The United States District Court for the Eastern District of Texas ruled for the plaintiffs and granted the injunction. Id. It reasoned that the Act was not a proper exercise of the Commerce Clause or the Necessary and Proper Clause. Id. Furthermore, since the Act caused injury to the plaintiffs and millions of other businesses by burdening them with compliance costs, the Act warranted a nationwide injunction. Id.

The Government then appealed and asked the courts to stay the injunction pending the outcome of the case. Tex. Top Cop Shop, Inc. v. Garland, No. 24-40792, 2024 WL 5203138 (5th Cir. 2024). The Fifth Circuit granted, then vacated, the stay, and the case was brought to the Supreme Court. Tex. Top Cop Shop, Inc., 2024 WL 5203138; Tex. Top Cop Shop, Inc. v. Garland, 4:24-CV-00478, 2024 WL 5224138 (5th Cir. 2024).

Justice Alito granted the stay and Justice Gorsuch concurred. McHenry v. Tex. Top Cop Shop, Inc., 145 S.Ct. 1, 1 (2025). Id. Justice Jackson dissented, speculating that while the Government was likely to prevail, it did not have a sufficiently urgent need for the Supreme Court to interfere and grant the stay. Id.

While the case’s outcome remains up in the air, it is up to businesses to decide how to handle their BOI compliance. (Tristan Navera, Bloomberg). Businesses retain the option to wait for the stay to be enforced before disclosing their BOI, but this would be risky given the consequences should the Government prevail. Id. If the Act is enforced, filing retroactively could slow the submission process, and preparing such filings will be tricky, given the complex process of filing the relevant data. (John Woolley & Tristan Navera, Bloomberg). Businesses that fail to promptly submit BOI will be fined $500 each day and potentially face criminal charges. (FinCEN).

In light of the Act’s mandate of trading private information for national security, it is unclear how the Trump Administration will treat the CTA. (John Woolley & Tristan Navera, Bloomberg). Republican Congress members have tried to repeal the CTA, but some believe the ambitions of the CTA and FinCEN’s final rule are well-aligned with the Republican Party’s objectives. (John Woolley & Tristan Navera, Bloomberg; Congress). Though the Act undermines private security rights by mandating certain disclosures to the government, the Act could fortify national security by ensuring other countries cannot hide illicit activity such as drug trafficking in shell companies. (John Woolley & Tristan Navera, Bloomberg; Federal Register).

It is similarly unclear how the Department of Government Efficiency (DOGE) will treat the Act. (White House). DOGE claims it will “moderniz[e] federal technology and software to maximize governmental efficiency and productivity.” Id. This includes granting the United States DOGE Service (USDS) “full and prompt access to all unclassified agency records, software systems, and IT systems.” Id. This could feasibly include BOI requested by FinCEN, though it would clash with FinCEN’s rule that federal government agencies must certify a legitimate security or intelligence interest to access the data. (White House; FinCEN).

Over 32.6 million US businesses will be affected by the CTA if the stay is upheld. (Tristan Navera, Bloomberg). Businesses ought to prepare for the possibility that the CTA is here to stay, lest they face the legal ramifications. Id. The Fifth Circuit is set to hear oral arguments for Texas Cop Shop, Inc. in March 2025, but even a government victory in the case may ring hollow. Id. Despite the benefits to national security, the Trump Administration is unlikely to sustain support for the Act as it weighs constitutional and privacy rights for corporations. Id. The holding in Texas Top Cop Shop, Inc. will inevitably impact the privacy rights of any beneficial owners, and businesses should keep a close eye on its implications. Id.