Schrödinger's Corporate Transparency Act
Not quite dead, not quite alive*
Let’s be honest: absolutely nothing is good right now. I was on vacation for my birthday last week when all the NSF stuff went down (my current position is funded by the NSF). I wrote this right before I left for vacation, and I want to try posting on the WhiteWind blog platform built on top of AT Proto.
The Background
While now seemingly minor in comparison, news about the Corporate Transparency Act (CTA) has been in a legal will-they, won’t-they for a few months. But us sickos who pay attention to the ABCs - that’s automatic exchange of information, beneficial ownership transparency, and country-by-country reporting - as global tools to tackle money laundering and tax evasion are hard at work following niche legal news so you don’t have to.
TL;DR: The US Supreme Court stayed an injunction for a pending Fifth Circuit court case against the Corporate Transparency Act (CTA). In non-lawyer speak, the Fifth Circuit ruled to stop implementation of the CTA nationwide, which SCOTUS overruled and said must continue. Confused yet?
Aside from 23 exemptions, the CTA requires corporate entities like LLCs to file reports with the Financial Crimes Enforcement Network (FinCEN). These reports include minimal identifying information about any individual who owns 25% or more of the entity or who exercises meaningful control over its day-to-day operations. They disclose the real, human owner(s) behind a company to give the government information needed to investigate illicit activities like money laundering, sanctions evasion, and human trafficking.
But that wasn’t all. A separate injunction from another judge in East Texas that was not brought before SCOTUS still holds according to FinCEN. These officials have been working overtime responding to each court case about whether covered entities have to file. Their guidance as of January 24, 2025 states filing is voluntary, not mandatory. For now, the CTA remains in legal purgatory.**
How Did We Get Here?
For many, many, reasons, it did not have to be this way. The first reason is the CTA passed January 1, 2021 but didn’t take effect until January 1, 2025. The Biden administration literally had all four years to work with FinCEN to get the CTA rules drafted and implemented. Biden himself attempted to make countering transnational corruption one of his signature foreign policy issues. He fumbled the bag by not accelerating the timeline for CTA implementation.
The second reason is that the Biden administration and civil society / business coalition supporting the CTA should have anticipated this onslaught of legal challenges. The CTA only passed because it was included as part of the annual must-pass defense spending bill. Congress had to override President Trump’s veto of it. We know President Trump is a shell company user. Many of the legal challenges have been brought directly by or with the support of astroturfing “small business” groups. This coalition was not well prepared to respond to over half a dozen state court cases simultaneously.
The third reason is that actual small business owners have several legitimate criticisms about the CTA. Why is it a federal filing obligation when incorporation documents are done at the state level? Doesn’t the IRS already have this information? Aren’t there significant data privacy and hacking concerns here? The answer, as it so often is, goes back to politics.
The Lore
Congressmembers proposed some version of the Corporate Transparency Act in every session from 2008 to 2020. Former Michigan Democratic Senator Levin proposed the first Incorporation Transparency and Law Enforcement Assistance (ITLEA) Act in May 2008. ITLEA would have required all covered corporate entities to report their beneficial owners when filing state incorporation documents, to update that information on a regular basis, and to require corporate formation agents to verify the beneficial ownership information for non-US corporate owners.
The CTA didn’t have to be this way from the start. Senator Levin’s original ITLEA bill foresaw all the key political problems. Small business owners wouldn’t want a separate federal filing obligation, so make it part of annual state-level business filing for familiarity and to maintain current information. Make sure that corporate formation agents had to file too so bad actors couldn’t skirt the law. Give federal agents access to state-level databases to better coordinate across jurisdictions and to speed up investigations. Don’t have the IRS share its information with FinCEN to get the tax evaders’ opposition off their backs. ITLEA addressed all of the main critiques that actual small business owners have raised over the past few months.
But several groups opposed ITLEA and led us to the arguably convoluted CTA we have today. One faction made up of registered agents, state Secretaries of State, and the American Bar Association all complained about high administrative and legal costs. “Small business” interest groups like the National Federation of Independent Businesses and the National Small Business Association also raised cost and privacy concerns for small business owners (which were mostly concerns about the privacy and material well-being of wealthy individuals).
Then you have dark money groups and firms and less-regulated industries themselves: Alticor (run by the DeVos family), Koch Companies Public Sector, National Venture Capital Association, Managed Funds Association, Financial Services Forum, CT Corporation, and American Institute of Certified Public Accountants lobbied against similar bills through the 2010s. They all opposed the adoption of the CTA outright. When it looked like the business / civil society coalition might win, these groups watered down the bill as much as they could.
This decade plus of lobbying turned ITLEA into the CTA. The state secretaries of state didn’t want to do it, so make FinCEN do it. The IRS can’t do it because they might go after tax fraud, which threatened dark money and financial groups. Exempt many types of corporate entities that happen to be frequently used means of tax fraud and money laundering. FinCEN created a new, secure beneficial ownership database from scratch rather than rely on existing state and IRS security protocols to respond to the privacy concerns of small business.
What's Next?
So here we are. Legally and administratively, the CTA is very much up in the air. It doesn’t look good for the future of beneficial ownership transparency in the US.
One might look at the decades-long fight over the CTA and argue that it embodies the fundamental rift within the Trump-led Republican party. On the one hand, you have the broligarchs - in tandem with private equity firms, venture capitalists, asset managers, and the like - that benefit from the corporate secrecy the US continues to provide (as does Trump). On the other hand, you have the national security hawks - the legislators and firms worried about Chinese money laundering, Iranian sanctions evasion, or Mexican drug and human trafficking - that genuinely want law enforcement to have the information they need to address these problems.
Yet Republicans in the House and the Senate have already introduced bills to repeal the CTA in line with Project 2025 (page 707). If the last two weeks have shown anything, the momentum is on the side of the broligarchs.
Oral arguments for the Fifth Circuit case are on March 25. Until there’s more legal clarity, the CTA will continue to exist in a frightening, liminal space between states of being.
*The subtitle is for Socko fans. If you know, you know.
**I’ll be following ACAMS reporting and Zorka Millin as the legal and political analysis develops.
