MVA White Collar Defense, Investigations, and Regulatory Advice Blog

On January 23, 2025, the United States Supreme Court ruled on McHenry v. Texas Top Cop Shop, Inc., granting the Government’s application to stay the injunction of the Corporate Transparency Act (“CTA”) initially ordered by the Eastern District of Texas. Despite this order, the CTA is still on hold due to a separate nationwide order issued by a different federal judge in the Eastern District of Texas in Samantha Smith and Robert Means vs. U.S. Department of Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/2025), which stayed the effective date of the CTA reporting rule nationwide while the lawsuit is pending.

In Smith v. U.S., Judge Kernodle found that the CTA was likely unconstitutional as an improper exercise of the commerce clause, the power to regulate foreign commerce and foreign affairs, and the power to tax. Judge Kernodle leans heavily on the decision in Texas Top Cop Shop, Inc. v. Garland, commenting on the substantial risk of irreparable harm by forcing individuals to comply with a law that is unconstitutional and incur irrecoverable costs to do so. Judge Kernodle concludes that the balance of the equities and public interest are both in favor of the plaintiff; the opinion notes that the “public will not be injured by an injunction temporarily enjoining a law that violates the Constitution.”

On January 24, 2025, FinCEN posted an update on the Beneficial Ownership Information site confirming that the nationwide injunction remains in place. The Supreme Court’s action in McHenry v. Texas Top Cop Shop, Inc. applied only to the injunction issued in that case and not to the Smith v. US injunction, or to the broader question of the right of a district court to issue an injunction having nationwide application.

As of publication, the government has not appealed the decision in Smith v. U.S. On the legislative front, the "Repealing Big Brother Overreach Act" (H.R 8147 and S. 4297), which would entirely repeal the CTA, has been revived in the House of Representatives and Senate and may gain traction in the coming days and weeks. Additionally, Scott Bessent may be installed as the new Secretary of the Treasury, and, as such, the priorities of the new administration may play a role in the fate and enforcement of the CTA.

We are continuing to monitor the situation, and will provide further updates when they become available.