Trump Suggests Corporate Transparency Act Tweaks Amid Support

A US Supreme Court order allowing enforcement of the Corporate Transparency Act amid legal challenges put the ball back in the court of a new Trump administration that already has indicated a desire to switch things up.

The government is now within striking distance of finally seeing the 2021 business law put into action, but President Donald Trump‘s personal views on the financial crime prevention measure remain unclear.

That begs the question of whether—and how—enforcement will actually take place for the millions of American businesses that must report to the US government on their ownership under the law that targets crime facilitated by anonymous shell companies.

The administration recently signaled it would move ahead with enforcement in an appeal to an injunction in Smith v. US Department of Treasury, a case challenging the CTA that’s separate from the one that made its way to the Supreme Court. The judge in Smith blocked a key Financial Crimes Enforcement Network regulation implementing the law, effectively preventing CTA enforcement for the time being.

The government also filed a brief in the US Court of Appeals for the Fifth Circuit, which is hearing the underlying challenge on the issue of whether enforcement could continue while litigation is pending. Both challenges to the law argue it encroaches on the regulation of commerce normally handled at the state level.

The administration argued against the nationwide injunction blocking the CTA, maintaining that the law is constitutional and meant to plug an enforcement gap against “money laundering, terrorism financing, tax fraud, and other economic crimes.”

At the same time, however, the government said in its Smith appeal that “Treasury continues to assess the potential burden” of the final rule at issue in that case.

If the court allows the rule to go into effect, FinCEN intends to extend the deadline for some 32 million US businesses to file their ownership information for another 30 days. “During that period, FinCEN intends to assess its potential options to prioritize reporting for those entities that pose the most significant national security risks while providing relief to lower-risk entities and, if warranted, amending the Final Rule,” the government said.

The uncertainty and legal back-and-forth leaves lawyers and their clients watching and waiting for what’s next for the CTA.

“It feels like a wild card, we don’t know how it’s going to turn out, and it could end up that Trump doesn’t have much interest one way or another,” said John Sullivan, a member of Cozen O’Connor’s Commercial Litigation Department.

A representative for FinCEN directed requests for comment to its voluntary compliance guidelines. The Treasury Department didn’t respond to messages seeking comment.

Republican Backlash

Trump vetoed the CTA during his first term when it was tucked into the National Defense Authorization Act, although he didn’t indicate that the veto was specific to that provision. In fact, his administration largely supported an earlier version of the legislation in 2019, albeit while calling for tweaks to the language.

Yet the CTA has faced increasingly vocal Republican opposition in recent months.

Attorneys general from 25 Republican-led states urged the Supreme Court to keep in place a nationwide pause on enforcement in January .

Fourteen members of Congress followed with their own brief, led by Sen. Thom Tillis (R-N.C.), calling the CTA “unwarranted, unauthorized, and invasive” for its potential to gather information on Americans.

Sen. Tommy Tuberville (R-Ala.) and Rep. Warren Davidson (R-Ohio) also introduced companion bills (S. 100/H.R. 425) Jan. 15 to repeal the CTA. As of Feb. 7, the House bill had 92 cosponsors and the Senate bill 25, all Republicans.

Scott Greytak, an attorney and the director of advocacy for Transparency International, said a recent presidential memorandum pertaining to Iran could hold the key to how Trump views the CTA.

The memo directs Treasury to evaluate “beneficial ownership thresholds” of companies as a part of a larger strategy to ensure sanctions against Iran are working.

That shows the administration sees the CTA as a foreign policy tool to enforce the president’s international trade agenda, Greytak said.

“Even so, the administration has been asking for extensions to file its responses in the different cases,” said Greytak, whose organization supports the CTA. “It wouldn’t make that effort if it was going to drop the CTA.”

In the meantime, attorneys are advising clients to simply file their beneficial ownership reports with FinCEN if they have no major objection, or at least get ready to do so.

“Just do the legwork,” said Danielle Lemberg, a partner in the New York-based Business Transactions Group of Seward & Kissel LLP.

“If there’s a mad scramble to start the process and a short time frame to do so, it’ll be difficult, knowing other businesses will be doing the same,” she said.

Litigation Ongoing

Annie Lawson, an associate in the Tax Practice Group in Haynes Boone’s Denver office, believes the district court in the Smith case will vacate the stay on the FinCEN rule in light of the justices’ ruling, allowing the agency to set a new date for the CTA to go into effect.

“The message from SCOTUS is clear; the CTA should remain in effect while the issue is being litigated,” Lawson said. And if that order is appealed, it’s likely the Fifth Circuit would lift the enforcement stay without much delay, she said.

But don’t expect a ruling in FinCEN’s favor on the enforcement issue to end litigation, said Niles Elber, a tax controversy litigator with Caplin & Drysdale.

The agency is likely to target low-hanging fruit, penalizing small companies that don’t meet the filing requirements but aren’t the large-scale money laundering operations the law was meant to curtail, he said.

“There will be all this legal wrangling and probably a lot of cases filed,” Elber said. “But if you’re a money launderer, you’re probably going to find a way around this law.”