Nationwide Injunction Against Corporate Transparency Act Enforcement Halts Reporting Requirements

In Texas Top Cop Shop, Inc. v. Garland, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction against the enforcement of the Corporate Transparency Act (CTA) and its implementing regulations. The court concluded that the CTA likely violates constitutional protections and represents an overreach of federal authority, granting plaintiffs’ preliminary injunction to halt its implementation.

Nationwide Injunction’s Significance:

This injunction is pivotal because it halts enforcement of the CTA across the entire country, pending further legal review. The decision reflects broader debates over federal authority, state rights, and privacy concerns in the context of anti-money laundering efforts. It underscores judicial skepticism about sweeping federal regulations that impose substantial burdens on individuals and businesses without clear constitutional grounding.

The case exemplifies the tension between modern regulatory efforts and foundational constitutional principles, likely setting the stage for appellate and potentially Supreme Court review. For businesses, the ruling provides temporary relief from compliance obligations but raises questions about the future of corporate transparency laws in the United States.

Key Points of the Decision:

• Constitutional Issues: The court found the CTA likely infringes upon First Amendment rights (compelled speech and association), Fourth Amendment rights (unreasonable searches), and Ninth and Tenth Amendment protections (state sovereignty).
• Federal Overreach: Judge Amos L. Mazzant emphasized the importance of constitutional boundaries, stating:

“Modern problems may well warrant modern solutions, but modernity does not grant Congress a roving license to legislate outside the boundaries of our timeless, written Constitution.”

• Regulatory Burden: The court recognized the significant compliance costs imposed on small businesses, deeming them an irreparable harm justifying immediate injunctive relief.

What Happens Next?

The decision offers a temporary pause on CTA compliance requirements, but businesses must not view this as a permanent resolution. The U.S. Department of the Treasury and other government agencies are expected to appeal this decision to the Fifth Circuit and may seek an expedited ruling. If overturned, the compliance obligations under the CTA could resume swiftly, with looming deadlines at the end of the year.