The Fifth Circuit Court of Appeals on December 23, 2024 issued an order[^1] staying the nationwide injunction issued by the US District Court for the Eastern District of Texas blocking enforcement of the Corporate Transparency. Thus, entities in existence on January 1, 2024 will be required to have filed their BOI report by January 1, 2025 unless they qualify for an exemption.

When deciding a motion to stay pending appeal, the court considers four factors:

1. Whether the applicant has made a strong showing that they are likely to succeed on the merits.
2. Whether the applicant will be irreparably injured absent a stay.
3. Whether the issuance of the stay will substantially injure the other parties interested in the proceeding.
4. Where the public interest lies.[^2]

In this case, the court found that the government had met its burden under these four factors.

Regarding the first factor, the court determined that the government had made a strong showing that it is likely to succeed on the merits in defending the Corporate Transparency Act’s (CTA) constitutionality. The court reasoned that the CTA regulates the ownership and operation of businesses, which are part of an economic class of activities that have a substantial effect on interstate commerce. The court also noted that the CTA requires certain corporate entities to report their beneficial ownership interest in order to target illicit financial activity. The court found that the government had made at least a “substantial case” on the merits.

The court also found that the businesses challenging the law misapplied the Supreme Court’s ruling in National Federation of Independent Business v. Sebelius. The court stated that unlike the Affordable Care Act’s health insurance mandate which was found to regulate individuals whose commercial inactivity was their defining feature, the CTA establishes reporting requirements for corporate entities whose defining feature is their ability and propensity to engage in commercial activity. Further, the court noted that the CTA excludes many entities from its definition of a “reporting company” and allows for additional exemptions, which supports the government’s argument that the CTA regulates the ownership and operation of businesses by imposing disclosure requirements to combat financial crimes.

The court also stated that the government had made a strong showing against the Businesses’ facial challenge to the CTA. The court cited Supreme Court precedent that a facial challenger must prove that no set of circumstances exist under which the Act would be valid. The court found that the CTA is likely constitutional on its face because it operates constitutionally when it requires that corporations engaged in business operations affecting interstate commerce disclose their beneficial owner and applicant information to the Financial Crimes Enforcement Network (FinCEN).

Regarding the second factor, the court found that the government satisfied this requirement because a last-minute injunction of a statute proposed and passed by the people’s representatives necessarily inflicts irreparable harm. The court stated that any time a government is prevented from effectuating statutes enacted by its representatives, it suffers a form of irreparable injury.

Regarding the third and fourth factors, the court found that the government satisfied these by demonstrating that “the balance of the equities weighs heavily in favor of granting the stay”. The court stated that the harm a stay would cause the businesses is minimal, noting that FinCEN estimated that a typical, simple company would spend about 90 minutes to complete the required report, which may be filed for free. The court noted that the businesses did not contend they had more complex structures that would require more time or money, nor did they state their potential costs with any particularity.

The court balanced this against the public’s interest in combatting financial crime and protecting national security. The court stated that a last-minute nationwide preliminary injunction would undermine the ability of the U.S. to push other countries to reform their anti-money laundering and counterterrorism regimes. The court also noted that the businesses had almost four years to prepare for the CTA since its enactment and a year since FinCEN announced the reporting deadline.

Ultimately, the court granted the government’s emergency motion for a stay pending appeal and expedited the appeal.

[^1]: Order, Texas Top Cop Shop, Inc. v. Garland, CA5 Case No. 24-40792, Document 140-2, December 23, 2024, https://storage.courtlistener.com/recap/gov.uscourts.ca5.222187/gov.uscourts.ca5.222187.140.2.pdf

[^2]: Order, Texas Top Cop Shop, Inc. v. Garland, CA5 Case No. 24-40792, Document 140-2, December 23, 2024