Overview
Congress passed the Corporate Transparency Act in 2021 to crack down on anonymous shell companies used for money laundering and terrorist financing. The law required 33 million U.S. businesses to report their true owners to FinCEN. Then courts in Alabama and Texas declared it likely unconstitutional. The Supreme Court stepped in. Within hours, a second Texas judge issued a new nationwide injunction.
Now the law exists in regulatory purgatory. The Eleventh Circuit upheld it as constitutional in December 2025, but the Trump Treasury Department exempted all domestic companies in March 2025—shrinking the affected pool from 33 million to roughly 12,000 foreign entities. What began as the biggest anti-money laundering reform in decades has become a case study in judicial ping-pong and administrative reversal.
Key Indicators
People Involved
Organizations Involved
Treasury bureau responsible for collecting beneficial ownership information and combating money laundering.
Nonprofit representing small business interests, first organization to successfully challenge CTA constitutionality.
Cabinet department defending the Corporate Transparency Act while simultaneously scaling back enforcement.
Timeline
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Eleventh Circuit Unanimously Upholds CTA
LegalThree-judge panel reverses Alabama decision, finding CTA constitutional under Commerce Clause and Fourth Amendment. Law survives but Treasury exemption keeps most companies off the hook.
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Fifth Circuit Oral Arguments in Texas Top Cop Shop
LegalAppeals court hears arguments on CTA's constitutionality in Texas Top Cop Shop case, with decision pending.
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FinCEN Exempts All Domestic Companies
RegulatoryInterim final rule redefines "reporting company" to mean only foreign entities registered in U.S., exempting all 33 million domestic companies and shrinking scope to 12,000 businesses.
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Trump Treasury Announces Enforcement Suspension
PolicyDepartment of Treasury announces it will suspend CTA enforcement against U.S. citizens and domestic reporting companies, signaling major policy reversal.
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Judge Kernodle Lifts Smith Injunction
LegalFollowing Supreme Court guidance in Texas Top Cop Shop, Judge Kernodle stays his nationwide injunction. FinCEN extends deadline to March 21, 2025.
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Government Appeals Smith Injunction
LegalDOJ files appeal and motion to stay preliminary relief in Smith case, seeking to reinstate reporting obligations.
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Supreme Court Lifts Texas Top Cop Shop Injunction
LegalIn 8-1 decision, Supreme Court grants government's emergency stay application, lifting nationwide injunction pending Fifth Circuit appeal. But Smith injunction keeps requirements paused.
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Texas Court Issues Nationwide Corporate Transparency Act Injunction
LegalJudge Jeremy Kernodle issues nationwide injunction in Smith v. Treasury the same day Supreme Court lifts Texas Top Cop Shop injunction, keeping reporting suspended despite high court action.
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Different Fifth Circuit Panel Reinstates Block
LegalThree days later, different panel of Fifth Circuit judges overturns the stay decision, reimposing nationwide injunction and halting enforcement again.
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Fifth Circuit Lifts Injunction
LegalAppeals court grants FinCEN's emergency stay motion, allowing enforcement to resume and reinstating reporting deadlines.
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Texas Top Cop Shop Wins Nationwide Injunction
LegalEastern District of Texas issues nationwide preliminary injunction blocking CTA enforcement just weeks before January 2025 deadline, finding law likely violates Ninth and Tenth Amendments.
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Smith Lawsuit Filed in Texas
LegalSamantha Smith and Robert Means, Texas property owners using LLCs to hold real estate, file constitutional challenge in Eastern District of Texas.
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Alabama Court Declares CTA Unconstitutional
LegalJudge Liles Burke rules CTA exceeds constitutional limits on Congress's power, permanently enjoining enforcement against NSBU plaintiffs and members. Government immediately appeals.
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FinCEN Begins Accepting Reports
ImplementationBeneficial ownership information registry opens. Existing companies have until January 1, 2025 to file; new companies created in 2024 have 90 days from formation.
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First Constitutional Challenge Filed
LegalNational Small Business United and Isaac Winkles sue in Alabama federal court, arguing CTA exceeds Congress's constitutional powers under Commerce Clause and violates privacy rights.
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FinCEN Publishes Reporting Rule
RegulatoryTreasury's Financial Crimes Enforcement Network issues regulations requiring 33 million reporting companies to disclose beneficial ownership information, with implementation beginning January 2024.
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Corporate Transparency Act Becomes Law
LegislativeCongress overrides Trump veto of National Defense Authorization Act, enacting the Anti-Money Laundering Act of 2020 containing the CTA. Law targets anonymous shell companies used for money laundering and terrorist financing.
Scenarios
Congress Repeals CTA Entirely, Shell Companies Return
Discussed by: Rep. Warren Davidson (R-OH) with 68 House co-sponsors; Senators Rand Paul and Tommy Tuberville introduced companion bill
The Repealing Big Brother Overreach Act gains momentum as Republicans control Congress and the White House. The law is repealed as government overreach, with supporters arguing state incorporation laws are sufficient. Anti-money laundering advocates warn the U.S. reopens the door to illicit finance, becoming the go-to jurisdiction for anonymous shell companies. Financial institutions absorb the full burden of beneficial ownership verification under Bank Secrecy Act requirements without the FinCEN database to cross-check claims.
Trump Exemption Becomes Permanent, Foreign-Only Regime Survives
Discussed by: Legal analysts at Simpson Thacher, Stinson, and other major law firms tracking the March 2025 interim rule
The March 2025 interim final rule exempting domestic companies becomes permanent after the public comment period. The CTA exists on paper as constitutional law following the Eleventh Circuit decision, but enforcement focuses exclusively on approximately 12,000 foreign entities registered in the U.S. This satisfies political opponents who see it as targeting foreigners rather than American small businesses, while gutting the law's original anti-money laundering purpose since most shell company abuse involves U.S.-formed entities. Appeals in Texas Top Cop Shop become moot as administrative action achieves what courts couldn't.
Future Administration Revives Full Enforcement Against 33 Million Companies
Discussed by: Transparency International, FACT Coalition, and anti-corruption advocates; implied risk in legal firm advisories
A future administration reverses the Trump Treasury's March 2025 exemption through new rulemaking, reinstating the original reporting requirements for all 33 million domestic companies. The Eleventh Circuit's constitutional blessing provides legal foundation. The Supreme Court's Texas Top Cop Shop stay signals the high court wouldn't block enforcement. Businesses face regulatory whiplash for a second time, with companies that never filed suddenly scrambling to meet new deadlines. This scenario creates the compliance chaos and uncertainty that defined the CTA's first four years.
Fifth Circuit or Supreme Court Declares CTA Unconstitutional
Discussed by: Constitutional scholars and defense lawyers in ongoing litigation; dissenting opinions in lower court rulings
The Fifth Circuit reverses course in Texas Top Cop Shop appeal or another challenge reaches the Supreme Court on different grounds than the procedural stay. A majority finds the CTA exceeds Congress's Commerce Clause authority or violates the Tenth Amendment by commandeering traditional state corporate registration functions. The nationwide injunction becomes permanent. FinCEN shuts down the beneficial ownership database. The law dies not through repeal but judicial nullification, with the Eleventh Circuit's contrary ruling creating a circuit split that the Supreme Court resolves against the government.
Historical Context
Affordable Care Act Individual Mandate Litigation
2012-2021What Happened
The Supreme Court rejected constitutional challenges to the ACA three times over nine years. First, Chief Justice Roberts upheld the individual mandate as a tax in 2012. Then the Court preserved subsidies in King v. Burwell in 2015. Finally, in 2021, the Court dismissed a third challenge on standing grounds. Justice Alito called it the Court's "epic Affordable Care Act trilogy," each time pulling off an "improbable rescue" of the law when it faced serious threats.
Outcome
Short term: The ACA survived repeated attempts to dismantle it through litigation despite initial constitutional doubts.
Long term: The law became entrenched despite ongoing political opposition, with courts increasingly reluctant to second-guess major legislation.
Why It's Relevant
Like the ACA, the CTA faces a pattern of repeated legal challenges and Supreme Court interventions, with the law surviving on narrow procedural or technical grounds even as its practical enforcement changes dramatically.
Trump-Biden Regulatory Whiplash
2017-2025What Happened
The Trump administration rolled back over 100 environmental rules, while Biden reversed 62 of Trump's 219 executive orders in his first 100 days. Federal courts upheld Trump-era environmental rules in only 20 percent of challenges, versus the historical 70 percent rate. The Biden administration used litigation abeyances, Congressional Review Act repeals, and delayed implementation to reverse Trump policies. The second Trump administration immediately began reversing Biden's late-term regulations on emissions, overtime pay, and healthcare.
Outcome
Short term: Businesses faced compliance uncertainty as rules changed with each administration, making long-term planning impossible.
Long term: Regulatory stability eroded as partisan rule-making and swift reversals became normalized across administrations.
Why It's Relevant
The CTA's trajectory from Biden enforcement to Trump exemption mirrors the broader pattern of regulatory flip-flopping between administrations, leaving businesses in perpetual uncertainty about compliance obligations.
Bank Secrecy Act Creates Financial Institution Reporting Regime
1970-presentWhat Happened
Congress passed the Bank Secrecy Act in 1970, requiring financial institutions to report cash transactions over $10,000 and file suspicious activity reports to help detect money laundering. Banks became responsible for customer due diligence, including verifying beneficial ownership of business accounts. The law survived constitutional challenges and created FinCEN as the enforcement agency. Over five decades, reporting requirements expanded to cover more transaction types and lower thresholds.
Outcome
Short term: Banks absorbed significant compliance costs, passing customer information to law enforcement on a massive scale.
Long term: The BSA became accepted infrastructure for anti-money laundering efforts, with financial institutions accepting their role as government reporting agents.
Why It's Relevant
The CTA attempted to shift beneficial ownership reporting from financial institutions to the companies themselves, but after Trump's exemption of domestic companies, banks remain the primary gatekeepers under BSA requirements—returning to the pre-CTA status quo.