Corporate Transparency Act Update: Legal Rollercoaster for Banks

For bank compliance professionals, staying up to date on the Corporate Transparency Act (CTA) has felt like riding a legal rollercoaster—every time you think the dust has settled, there’s another twist. Most recently, the Fifth Circuit Court of Appeals made yet another pivotal decision, throwing the industry back into a state of uncertainty.

Here’s where things stand, what it means for your compliance efforts, and what you should do moving forward.

A “Redlight/Greenlight” Legal Battle

On December 5, 2024, the Department of Justice (DOJ), representing the Department of the Treasury, filed an appeal to the Fifth Circuit Court of Appeals in response to a memorandum opinion and order issued by Judge Mazzant of the U.S. District Court for the Eastern District of Texas. This order had granted a nationwide preliminary injunction barring enforcement of the CTA and halting its implementation in its entirety.

However, on December 23, 2024 the Fifth Circuit Court of Appeals granted a motion by the DOJ to stay that injunction pending an appeal. After the stay was granted, FinCEN issued guidance providing a short grace period and extending the reporting deadlines for entities.

What initially seemed like progress for the DOJ took an unexpected turn on December 26, 2024, when a Fifth Circuit merits panel vacated the stay of the preliminary injunction that had been granted earlier by the motions panel. This means the nationwide injunction against enforcing the CTA is back in effect—for now.

On December 27, 2024, the Fifth Circuit scheduled oral arguments for the appeal in late March 2025, effectively keeping the injunction active until at least then. Unless the en banc Fifth Circuit or the Supreme Court intervenes, banks and other entities remain in limbo.

Key Highlights from FinCEN’s Response

Following the Fifth Circuit’s December 26 decision, FinCEN issued updated guidance on December 27, concluding that:

• Reporting companies are not currently required to file beneficial ownership information (BOI) with FinCEN during the injunction.
• No penalties will be enforced for failing to submit BOI reports while the injunction is in place.
• Entities may voluntarily submit BOI reports if they choose.

This leaves the compliance community once again grappling with uncertainty, as reporting entities are essentially paused, yet encouraged to stay prepared for quick action should the requirements change.

Analyzing the Impacts

For Compliance Professionals

Even with the injunction in place, the CTA remains a focal point for banks. Establishing processes for beneficial ownership reporting can't be ignored, as swift compliance might be required if the injunction is overturned. 

For Reporting Entities

The grace period granted earlier by FinCEN—extending deadlines for compliance—has only added to the confusion. It’s clear, however, that FinCEN and the DOJ are anticipating compliance enforcement in the near future. Reporting entities need to monitor these developments closely.

What Happens Next?

The next major milestone will be the oral arguments scheduled for late March 2025. However, additional curveballs are possible, including efforts by the DOJ to seek further remedies such as a review by the full Fifth Circuit or an emergency stay from the Supreme Court.

How to Keep Up

This evolving situation could have significant ripple effects on financial institutions and compliance frameworks. Here’s how to stay ahead:

• Monitor Updates: Regulatory bodies and courts are issuing frequent updates on CTA compliance requirements.
• Assess Existing Processes: Evaluate your bank's ability to quickly pivot and implement BOI reporting systems if the injunction is lifted.
• Engage Legal Counsel: Partner with legal teams to understand your obligations under the CTA and prepare for potential compliance requirements.

Final Thoughts

The “redlight/greenlight” nature of the CTA legal battle is a headache for bank compliance professionals and reporting entities, but preparation will be key to mitigating disruption when enforcement begins. While no BOI filings are currently required, proactivity, rather than passivity, remains the best strategy.

For the latest insights, bookmark this blog and keep an eye on updates from Banker's Compliance Consulting. Your efforts now will make all the difference when enforcement eventually moves forward.