This article is adapted from the introduction to the third edition of Investment Company Determination Under the 1940 Act: Exemptions and Exceptions, published by the ABA Business Law Section in February 2025.

In its recent decision in Loper Bright Enterprises v. Raimondo,^[1] the U.S. Supreme Court abandoned the “Chevron doctrine,” which generally required courts to defer to the interpretation of an unclear statute by the regulatory agency charged with administering that statute. Instead, courts are now required to exercise their independent judgment on the interpretation of an ambiguous statute. This article will highlight some considerations for the U.S. Securities and Exchange Commission (the “SEC” or the “Commission”), and for lawyers who practice before the SEC, following Loper Bright.

I. Considerations for the SEC

The federal securities laws, like any complex statutory scheme, contain language that is, or that in particular situations can be, ambiguous. As an obvious example, the courts, the Commission, and sometimes Congress have wrestled repeatedly with the meaning of the term “fraud” in Section 10(b) and Rule 10b-5 of the Securities Exchange Act, sometimes in the context of insider trading practices, but also in a host of other contexts. The Commission sometimes adopts rules and regulations that fairly clearly seek to interpret potentially unclear statutory provisions, such as (among many others) the safe harbor provisions governing when an employee of a company assisting that company in a fundraising transaction is not acting as a broker-dealer, when a foreign broker-dealer operating in the United States does not need to register in the United States as a broker-dealer, when an investment adviser can manage a group of virtually identical advisory accounts without being deemed to be operating a registered fund, and when certain insurance products are not deemed to be securities.

In other cases, Commission rules and regulations that are intended to be proscriptive, rather than safe harbors, can also interpret ambiguous statutory provisions. As one example, Commission rules providing definitions for otherwise undefined terms used in the federal securities laws arguably are the poster child for interpreting ambiguous statutory provisions. But rules interpreting other parts of the federal securities laws also can involve interpretations of ambiguous statutory provisions. For example, is the Commission correct that the disclosure requirements of the Securities Act and the Securities Exchange Act are broad enough to require a mandatory disclosure regime focusing on climate change?

In addition, the Commission sometimes issues interpretations, sometimes as stand-alone statements and sometimes in connection with a rulemaking, that are not rules, and are just interpretations. Arguably, the fact that the Commission decided to give its interpretation of a particular statutory provision is evidence of that provision potentially being ambiguous, at least in the particular factual context in which the Commission discussed its interpretation.

a. Application of Loper Bright to Ambiguous Provisions

Under Loper Bright, the salient question ultimately is not whether the Commission thinks that a statutory provision is ambiguous; the question is whether the reviewing court thinks that the statutory provision is ambiguous, either as a whole or as applied to a particular factual situation. A court is no longer required to give deference to SEC rules, regulations, and interpretations that interpret a provision of the federal securities laws that is ambiguous, or that the court determines is ambiguous.

This does not mean, however, that the SEC’s statutory interpretations are irrelevant. The Loper Bright decision makes it clear that a court can decide to rely on or give deference to an agency’s expertise in interpreting an ambiguous statutory provision if the court finds that the agency’s interpretation is well reasoned and persuasive. By contrast, a court might decline to accord much or any weight to a Commission interpretation of an ambiguous statute if the court determines that the Commission’s interpretation was not the best legal interpretation of the relevant statutory provisions, and/or if the Commission’s legal analysis explaining its interpretation does not persuasively explain why that is the best legal interpretation of the relevant statutory provisions.

Loper Bright does not appear to have any direct bearing on an agency’s authority to adopt a rule; presumably that has always been, and remains, governed by long-standing judicial methods of interpreting the congressional intent in the statutes authorizing (and limiting) the agency’s rulemaking authority. In practice, however, the questions of an agency’s rulemaking authority and the validity of its statutory interpretations can at times blur.

The Loper Bright decision also offers the Commission and the Staff, and maybe especially the Staff, an opportunity. Loper Bright should motivate both the Commission and the Staff to seek to make their interpretations, both those that they adopt in the future and those that they have previously adopted, more legally persuasive and, where appropriate, more legally reasonable, in light of the statute or statutes relevant to those interpretations. Post–Loper Bright, the Commission and the Staff have a significant opportunity, through well-reasoned and persuasive legal interpretations, to potentially persuade courts to adopt their interpretations on securities law issues, even when the Commission is not a party to the relevant lawsuit.

b. Relevance of Staff Interpretations

An interesting corollary of the Loper Bright decision is that Staff interpretations, such as through no-action letters, can now be as relevant to a court as Commission interpretations. Following Loper Bright, the Commission’s interpretive views on ambiguous statutory provisions are not necessarily subject to special deference. Rather, the principal question faced by the court is what the court thinks is the correct statutory interpretation. In making this determination, a court might rely on a well-reasoned, persuasive legal discussion in a Staff no-action letter or other Staff interpretation every bit as much as it might rely on a well-reasoned, persuasive legal discussion in a Commission rule-making or interpretive release.

This possibility to some extent undercuts the relevance of the Commission’s oft-stated position that only the Commission, and not the Staff, speaks for the Commission. That statement is, of course, still true true—but at least in a post-Loper Bright court proceeding, a well-reasoned and persuasive Staff legal interpretation can be an important component of a court decision, even though it is not a Commission statement.

c. Importance of Offering the Best Legal Interpretations/Conclusions

Following the Loper Bright decision, the Commission and the Staff should consider taking a number of actions to improve the likelihood that courts will interpret ambiguous securities law provisions consistently with how the Commission and the Staff interpret those provisions. In each case, the actions of the Commission and the Staff should be intended to provide a well-reasoned and persuasive legal interpretation, with a laser focus on why that interpretation is the best legal interpretation of the relevant statute or statutes.

When it is able, the Staff might review and, where appropriate, supplement or revise its more important existing no-action letters and other interpretations. In many cases, the Staff offered very little of its own analysis as to the basis for its interpretations. For example, in a number of no-action letters, the Staff has summarized arguments made by counsel, and stated that it agreed with the conclusion without necessarily agreeing with counsel’s arguments. In relatively few cases did the Staff present a detailed analysis of why its interpretation was the best legal interpretation of the relevant statutory provision. Moving forward, the Staff should consider including in its no-action letters and other interpretations, as a matter of course, a well-reasoned, persuasive legal analysis of why its interpretations are not only consistent with the relevant statutes but also are (in its view) the best legal interpretations of those statutes.

Just as the Staff should consider reviewing its prior no-action and other interpretive positions in light of Loper Bright, the Commission also should consider engaging in a similar revision of its most important prior interpretations, and should consider revising its approach in the releases accompanying interpretations of the securities laws. This is the case both for statements that are unequivocally statutory interpretations and for rules and regulations that involve interpreting a potentially ambiguous statute.

Often, the Commission’s releases in these cases lack significant analysis of why the interpretation the Commission is taking is the best legal conclusion. In many cases, the Commission’s releases seem to focus significantly on why its interpretation is a good policy, or makes economic sense, or on other equally valid considerations. But what the Loper Bright Court appears to require is the best legal interpretation of the relevant statutes.

Moving forward, Commission releases adopting certain rules or interpreting specific statutory provisions might include a “Loper Bright” section that specifically focuses on the relevant statutory language, court cases, and administrative history, and carefully analyzes, as a court might, why the Commission believes its interpretation is the best legal interpretation of the relevant statutory language.

To be fair, Loper Bright presents challenges to the Commission, in part because of specific requirements that the Commission must follow, such as the requirements for the Commission to conduct certain economic and cost-benefit analyses when it adopts rules. These requirements may be somewhat divorced from the question of what the best legal interpretation of a given statute is. The Commission (like many regulatory agencies) also is subject to political interests and pressure that may sometimes affect its decision-making and statutory interpretations.

Courts, however, are not subject to these requirements and pressures; they are bound by the Loper Bright decision. As a result, courts may sympathize with the myriad competing considerations that the Commission is statutorily required to consider, but after Loper Bright, their inquiry likely will focus on the best legal interpretation of an ambiguous statute. Presumably, that must be the Commission’s focus when issuing legal interpretations of the federal securities laws as well. Economic, cost-benefit, and similar considerations, important as they are, presumably must be made after the determination of, and in the context of, the best legal interpretation of the relevant statute or statutes.

II. Considerations for Lawyers Practicing Before the SEC

Loper Bright also may offer lessons to lawyers who practice before the SEC. Perhaps most importantly, lawyers who are, for example, assisting a client in commenting on an SEC rule proposal should consider including a legal analysis and discussion of why their comments reflect the best legal interpretation of the relevant statutory provisions. This is, at least in some cases, a change from how many lawyers typically have sought to persuade the SEC or the Staff to accept their positions. For example, often in rule proposals the SEC specifically seeks comment on industry practices, economic considerations, and other matters that are not purely legal. Presumably, the Commission will, and should, continue to request this information. As discussed above, however, following the Loper Bright decision, the SEC should consider this information in light of what it determines to be the best legal interpretation of the relevant statute. Counsel helping a client respond to such requests for comment should therefore consider including not only the responsive information but also a proposed interpretation of the relevant statute that is consistent with that information, along with a legal analysis of why that interpretation is the best legal interpretation of that statute.

Similarly, a lawyer assisting a client in seeking a no-action or interpretive letter from the Staff should consider including a legal analysis of why the requested relief is the best interpretation of the relevant statute. Often, no-action letter requests focus significantly on relevant past Staff no-action letters and, where available, Commission interpretations. The requests sometimes include relatively little analysis of court cases and principles of statutory interpretation.

Whether addressing the Commission or the Staff, counsel also should consider including a discussion of relevant court cases interpreting statutes outside of the federal securities laws, when those cases are or may be relevant to the way that a court would consider the interpretation of a particular provision of the federal securities laws.

Finally, lawyers may want to reconsider some of their opinion practices following Loper Bright. In the past, lawyers may have been willing to issue “unqualified” opinions based on the existence of a Commission rule or statement interpreting a provision of the federal securities laws. Because legal opinions generally opine on what a court would determine and not on what the SEC would determine, and because a court no longer is necessarily required to defer to SEC interpretations of the federal securities laws, lawyers may want to consider whether a Commission rule interpreting a statute (or other statutory interpretation) is a sufficient basis on which to issue an unqualified opinion.

Benjamin D. Rosenblum is an associate at the law firm Cleary Gottlieb Steen & Hamilton LLP. This article reflects the views only of the authors and does not necessarily reflect the views of Cleary Gottlieb, its other lawyers, or Cleary Gottlieb’s clients.

1. No. 22-4751, 2024 WL 3208360 (U.S. June 28, 2024). ↑

On January 23, 2025, the U.S. Supreme Court issued an order in McHenry v. Texas Top Cop Shop, Inc.^[1] and granted a stay of the preliminary injunction issued by the federal district court, thereby eliminating that injunction’s impediment to enforcement of the reporting requirements of the Corporate Transparency Act (“CTA”) by the Financial Crimes Enforcement Network (“FinCEN”) while the litigation as to the CTA’s constitutionality proceeds.^[2]

The Court’s order reads thus:

[A]pplication [No. 24A653] for stay presented to Justice Alito and by him referred to the Court is granted. The December 5, 2024 amended order of the United States District Court for the Eastern District of Texas, case No. 4:24-cv-478, is stayed pending the disposition of the appeal in the United States Court of Appeals for the Fifth Circuit and disposition of a petition for a writ of certiorari, if such a writ is timely sought. Should certiorari be denied, this stay shall terminate automatically.^[3]

In his concurring opinion, Justice Gorsuch wrote, “I agree with the Court that the government is entitled to a stay of the district court’s universal injunction. I would, however, go a step further and, as the government suggests, take this case now to resolve definitively the question whether a district court may issue universal injunctive relief.”^[4] Justice Jackson, dissenting from the granting of the stay, wrote:

However likely the Government’s success on the merits may be, in my view, emergency relief is not appropriate because the applicant has failed to demonstrate sufficient exigency to justify our intervention. I see no need for this Court to step in now for at least two reasons. First, the Fifth Circuit has expedited its consideration of the Government’s appeal. Second, the Government deferred implementation on its own accord—setting an enforcement date of nearly four years after Congress enacted the law—despite the fact that the harms it now says warrant our involvement were likely to occur during that period. The Government has provided no indication that injury of a more serious or significant nature would result if the Act’s implementation is further delayed while the litigation proceeds in the lower courts. I would therefore deny the application and permit the appellate process to run its course.^[5]

However, while the application for stay to the Supreme Court was pending, a second decision in the same federal district court was issued—and in that case, Smith v. Department of the Treasury,^[6] a different injunction was imposed. That case is discussed below, but as of this writing, and notwithstanding certain published reports to the contrary,^[7] enforcement of the CTA’s Reporting Rules^[8] continues to be stayed by the separate preliminary injunction issued in Smith.^[9] At this juncture, that is about all we know, which means that there remains significant uncertainty.

Breaking Down the Ruling—or What Happens Next?

It is not entirely clear on what basis the Supreme Court reinstated the CTA (i.e., stayed the preliminary injunction against it): a general dislike of nationwide preliminary injunctions, a belief that the standards for the issuance of a nationwide injunction had not been satisfied, or something else. All of the following prognostication needs to be understood to be just that—a thought experiment as to where matters could proceed without any affirmative suggestion that they will do so:

• Presumably, the Texas Top Cop Shop (“TTCS”) case, now being heard on an expedited basis,^[10] will be returned to the Fifth Circuit for a decision on the merits as to the CTA’s constitutionality vis-à-vis the Commerce Clause; but in the meantime, viewed within the scope of the TTCS litigation,^[11] the CTA remains in effect.
• If the government prevails at the Fifth Circuit, the stay of the district court’s preliminary injunction will remain in force pending a decision on any petition for certiorari filed by (presumably) the plaintiffs.
• If the plaintiffs prevail at the Fifth Circuit, the stay of the district court’s preliminary injunction will remain in force pending a decision on any petition for certiorari filed by (presumably) the government.^[12]
• If the Supreme Court is unwilling to grant certiorari to either party dissatisfied with the decision of the Fifth Circuit, then the Supreme Court’s stay of the TTCS preliminary injunction will “terminate automatically.”
• If the Supreme Court grants certiorari to either party dissatisfied with the decision of the Fifth Circuit, then the Supreme Court’s stay of the TTCS preliminary injunction will remain in effect until the Supreme Court rules.

Smith v. U.S. Department of the Treasury: Preliminary Injunction

In the Smith case, pending in the same Texas federal district court as TTCS but before a different judge,^[13] the court on January 7, 2025, issued a preliminary injunction with two components.^[14] First, as to the named plaintiffs—just two individuals—enforcement of the CTA was enjoined. Second, on a nationwide basis, the Reporting Rules^[15] were enjoined. For purposes of this discussion, keep in mind that all of the reporting deadlines under the CTA, as well as the required contents of a beneficial ownership information report (“BOIR”), are provided for in the Reporting Rules.

Notwithstanding that it was mentioned in the government’s reply brief to the Supreme Court in TTCS,^[16] this suit was not referenced in the Supreme Court’s order imposing the stay of the injunction. Ordinarily, one might suspect that the preliminary injunction in the Smith case would meet the same fate in the Supreme Court or possibly the Fifth Circuit as did the Texas Top Cop Shop case. These are not ordinary times.

First, the government would need either to appeal the injunction from the district court to the Fifth Circuit on an emergency basis, or to ask the district court by motion to lift the injunction given the stay in TTCS.^[17] It is also possible that the Smith judge could act sua sponte. Another alternative would be to appeal and request that the appeal in Smith be consolidated with the already scheduled argument of TTCS. No doubt there are other paths. However, as of noon (EST) on February 2, 2025, no notice of appeal or motion to stay or lift the preliminary injunction has been filed in the Smith case. Even assuming that the government decides to continue to defend the CTA, it is entirely possible that it will allow the status quo ante^[18] to continue until the constitutionality of the CTA is determined, probably by the Supreme Court.

Other CTA Cases

There are a multitude of cases across the country challenging the CTA’s constitutionality that are pending in various postures. Already before the close of business on January 23, 2025, a copy of the Supreme Court’s TTCS decision was filed in Small Business Ass’n of Michigan v. Yellen.^[19] We should expect that similar filings will soon be made with other federal district courts before which CTA challenges are pending.

At the appellate level, in addition to Texas Top Cop Shop, there are appeals pending in the U.S. Courts of Appeals for the Eleventh, Ninth, and Fourth Circuits in National Small Business United v. Yellen,^[20] Firestone v. Yellen,^[21] and Community Associations Institute v. Yellen, respectively.^[22] Only National Small Business United involved injunctive relief, but it was restricted to the parties to that suit. That case has been fully briefed, and oral argument was held on September 27, 2024. Firestone and Community Associations Institute are at far earlier stages, and neither involved the trial court granting injunctive relief; in fact, each is an appeal of the district court’s denial of a preliminary injunction.^[23] Whether and how the Supreme Court’s decision in TTCS will impact those appeals remains to be seen. Also, while it is unknown whether the Eleventh Circuit has delayed publishing its decision in National Small Business United in the face of the preliminary injunction issued in TTCS, that factor is now set aside, perhaps affording that court more leeway to proceed. Moreover, new injunctive relief issued at the federal appeals court level could result from the decisions in any of these appeals.

At the trial court level, it is worth noting that on December 30, in the Hotze v. U.S. Department of the Treasury case presently pending in Texas, a motion for preliminary injunction was denied as moot in light of the relief already granted in Texas Top Cop Shop, with the court writing thus:

Accordingly, this Court is aware of no authority where one district court issued a nationwide injunction and parties in a parallel case subsequently urged for the same relief. As a threshold matter of logic, there is no further relief this Court may provide to Plaintiffs responsive to the instant Motion. The CTA and its Rule have already been enjoined to the fullest possible extent. After Texas Top Cop Shop, issuing a preliminary injunction on similar or distinct legal bases would amount to an advisory opinion under this procedural posture.^[24]

Filing Deadlines

As a practical matter, especially for companies formed in 2024 that had not yet filed their BOIRs and for pre-2024 companies that had expected to be required to file BOIRs by January 1, 2025, concerns remain, including the CTA’s $606 per day penalty.^[25]

Filing deadlines come in essentially four categories: (i) the initial filing deadline for all reporting companies preexisting January 1, 2024 (referred to herein as legacy companies); (ii) the initial filing deadline for reporting companies created on or after January 1, 2024, and before January 1, 2025 (referred to herein as 2024 companies); (iii) the initial filing deadline for companies created on or after January 1, 2025 (referred to herein as 2025 companies); and (iv) the filing deadlines for updating or correcting previously filed BOIRs.^[26] Under the Reporting Rules, (i) legacy companies had until not later than January 1, 2025, to file an initial BOIR; (ii) 2024 companies had ninety days from formation (or registration) to file an initial BOIR; (iii) 2025 companies have thirty days within which to file an initial BOIR; and (iv) all companies, having filed a BOIR, have thirty days within which to file an update to any changes from the last filed report.^[27] Obviously, the “not later than January 1, 2025” initial filing deadline for legacy companies is in the rearview mirror, as are the initial filing deadlines for many companies created after September 2, 2024, that did not yet make an initial filing.^[28] During the brief period in which the TTCS preliminary injunction was stayed by the Fifth Circuit motions panel, FinCEN issued (in retrospect, short-lived) updated reporting deadlines, essentially affording most companies an additional thirteen days within which to make their initial filings.^[29] Those modified deadlines are likewise in the rearview mirror.

On the morning of January 24, 2025, FinCEN published on its website an updated alert:

Alert: Ongoing Litigation—Texas Top Cop Shop, Inc., et al. v. McHenry, et al., No. 4:24-cv-00478 (E.D. Tex.) & Voluntary Submissions [Updated January 24, 2025]

In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.

****

On January 23, 2025, the Supreme Court granted the government’s motion to stay a nationwide injunction issued by a federal judge in Texas (Texas Top Cop Shop, Inc. v. McHenry—formerly, Texas Top Cop Shop v. Garland). As a separate nationwide order issued by a different federal judge in Texas (Smith v. U.S. Department of the Treasury) still remains in place, reporting companies are not currently required to file beneficial ownership information with FinCEN despite the Supreme Court’s action in Texas Top Cop Shop. Reporting companies also are not subject to liability if they fail to file this information while the Smith order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.^[30]

So, as of now and until there is a change in circumstances such as the lifting of the Smith preliminary injunction, no BOIR filings are due, and there are no filing deadlines. But what will happen if the Smith injunction is stayed or otherwise lifted? What then will be the filing deadlines? That is a great question, and as of now there is no answer. All else being equal, we would not only expect FinCEN to issue another alert setting forth revised deadlines (as they did following the Fifth Circuit’s December 23 lifting of the TTCS preliminary injunction) but would also expect a scramble among attorneys to contact clients and get them reengaged in the CTA compliance process—followed by a flurry of filings on FinCEN’s BOIT (formerly BOSS) system.

But all things are not equal, and no reader is unaware of the tumult resulting from the new presidential administration and the deluge of executive orders issued beginning on the afternoon of January 20, 2024. One of those executive orders, entitled “Regulatory Freeze Pending Review” provides in part:

I hereby order all executive departments and agencies to take the following steps:

(1) Do not propose or issue any rule in any manner, including by sending a rule to the Office of the Federal Register (the “OFR”), until a department or agency head appointed or designated by the President after noon on January 20, 2025, reviews and approves the rule.^[31]

Under the executive order, administrative agencies are not to issue any “rule” without the consent of one of the apparatchiks appointed to the new administration’s nomenklatura. Under the executive order, rule includes “any “regulatory action,” as defined in section 3(e) of Executive Order No. 12866 of September 30, 1993, as amended, and any “guidance document,” as defined in section 2(b) of Executive Order No. 13891 of October 9, 2019. Under this definition, “‘[r]egulatory action’ means any substantive action by an agency (normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking.” Under the CTA, the due dates for the filing of BOIRs have been set by the promulgation or amendment of the Reporting Rules, published in the Federal Register.^[32] On the other hand, FinCEN has extended these dates informally through “alerts” posted on its website.^[33] Thus, it is not entirely clear whether FinCEN can even provide revised filing dates without defying the new executive order.

Whether this prohibition will limit FinCEN’s ability to promulgate new deadlines, in effect amending the Reporting Rules, remains to be seen. It bears noting that FinCEN’s amended alert of January 24, 2025, did nothing more than acknowledge that the situation remains as it was pre–January 20, 2025—namely, that there are no enforceable filing deadlines presently in effect and that all filings are presently voluntary at this time. The imposition of new filing deadlines via an alert is a different matter.

Going Forward: Possible FinCEN Considerations

As noted, as of noon (EST) on February 2, 2025, no notice of appeal or emergency motion to stay the preliminary injunction has been filed in the Smith case. Even assuming that the government decides to continue to defend the CTA, it is entirely possible that it will allow the status quo ante^[34] to continue until the constitutionality of the CTA is determined, probably by the Supreme Court. Obviously, it is currently impossible to predict how the government will proceed, or even who will make these decisions. What could it be thinking about the future?

The U.S. regime change implicates the question of whether the new administration wishes the preliminary injunction be lifted before the final adjudication of the validity of the CTA. Discerning what the administration desires in terms of the ultimate resolution of the question of the CTA’s validity is beyond the scope of this article. While some members of the administration, such as Secretary of State Marco Rubio, have expressed a favorable opinion of the CTA, other indications suggest that the new administration may not be entirely supportive of an end to the preliminary injunction. Among these are the following:

1. Project 2025 expressly calls for the repeal of the CTA.^[35]
2. Senators Tommy Tuberville (R., Ala.) and James E. Risch (R., Idaho) have introduced a bill for the repeal of the CTA.^[36]
3. Several Republican members of Congress have joined in briefs in the Supreme Court in opposition to the government’s petition to stay the preliminary injunction in the Texas Top Cop Shop litigation.^[37]
4. Twenty-four state attorneys general (including the attorney general of Florida, a position formerly held by the U.S. attorney general nominated by the president) have joined in briefs in the Supreme Court in opposition to the government’s petition to stay the preliminary injunction in the Texas Top Cop Shop litigation.^[38]
5. Recently confirmed Secretary of the Treasury Scott Bessent’s response to a question as to the CTA is fairly characterized as ambivalent.^[39]
6. FinCEN’s concern with the emergency nature of temporary injunctions has not been consistent: it has not felt the need to seek emergency relief with respect to each temporary injunction issued against the CTA.^[40]

Best Practices: Legal Protection on the CTA Roller Coaster

Initially, to suggest that the recent back and forth as to the CTA is a roller coaster is unfair to roller coasters—on a roller coaster, you know when and where the ride will end, and you intentionally decide to go on the ride. Attorneys and clients have been befuddled by the on-again, off-again drama as the various courts and FinCEN have intervened, and there is understandable fatigue. In addition, much of the fourth quarter of 2024’s momentum toward compliance for legacy companies has been lost.

So, what to do now? The Smith preliminary injunction is, as of this writing, in effect, but that could change at any time, whereupon either (i) FinCEN will issue new guidance as to reporting deadlines or (ii) FinCEN will not be allowed to act, and all reporting companies that did not file either initial or updated BOIRs within the originally applicable deadlines will be in (retroactive) default and subject to the civil penalties and criminal fines detailed in the CTA. While not making a voluntary BOIR filing in the current environment is entirely permitted, you and your clients (or at least some of them) may believe it most expedient to make voluntary filings so as to cut off any potential exposure and “get it out of the way.” Others may decide to continue with assessment of how the CTA and the Reporting Rules apply to particular companies and their beneficial owners, holding off on filings unless and until a filing obligation is reinstated and then filing initial and, in some instances, updated BOIRs. We see merit in both approaches. Others will continue to ignore the CTA, hoping it goes away forever, a mindset that will necessitate a “fire drill” response if filings should again become mandatory. While a possible approach, we cannot recommend it as a best practice.

In closing,^[41] stay tuned for further developments.^[42]

1. 604 U.S. —, 2025 WL 272062 (U.S. Jan. 23, 2025) (No. 24A653). James McHenry, the acting U.S. attorney general, was substituted in the case style for former U.S. attorney general Merrick Garland. The case docket may be accessed online. See also Letter from Lyle C. Cayce, Clerk, U.S. Court of Appeals for the Fifth Circuit, to All Parties (Jan. 21, 2025) (Doc. No. 204) (giving notice that the case style is now Texas Top Cop Shop, Inc. v. McHenry). The case style was again updated on January 28, 2025, to include the then recently confirmed Secretary of the Treasury Scott Bessent. See Letter from Lyle C. Cayce, Clerk, U.S. Court of Appeals for the Fifth Circuit, to All Parties (Jan. 28, 2025) (Doc. No. 209). ↑

2. The prior history of the Texas Top Cop Shop case and related litigation challenging the constitutionality of the CTA is recounted in Christina Houston, Robert R. Keatinge, Thomas E. Rutledge & Jim Wheaton, How FinCEN Stole Christmas: The Corporate Transparency Act, Year 1, Bus. L. Today (Jan. 13, 2025). ↑

3. Tex. Top Cop Shop, No. 24A653, 2025 WL 272062, at *1. ↑

4. Id. (citations omitted). ↑

5. Id. (emphasis in original) (citation omitted). Justice Jackson is correct that there was a multiyear delay in the application of the CTA to companies preexisting January 1, 2024, but some context is in order. The CTA was approved on January 1, 2021. Notwithstanding a change in presidential administration, just three months later FinCEN issued an advance notice of proposed rulemaking (“ANPR”) as to the proposed regulations called for by Congress in the CTA. Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17,557 (Apr. 5, 2021) (ANPR). There then followed a notice of proposed rulemaking (“NPRM”). Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 69,920 (Dec. 8, 2021) (NPRM). Then, some ten months later, the Reporting Rules were finalized in Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022) (final), addressing in the process of drafting the final rules some 240 comments tendered in response to the NPRM. Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. at 59,509. It was only from that point in late 2022 that FinCEN could begin designing the interface through which beneficial ownership information report (“BOIR”) information would be submitted and the database in which it would be stored, a process that required further publication and solicitation of comment. Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77,404 (Dec. 16, 2022) (proposed); Beneficial Ownership Information Access and Safeguards, 88 Fed. Reg. 88,732 (Dec. 22, 2023) (final). The proposal received ninety-one comments. Beneficial Ownership Information Access and Safeguards, 87 Fed. Reg. 77,404. While it was not until January 1, 2024, that any reporting company could submit a BOIR, companies formed on or after that date have been obligated to make initial and, if appropriate, updated reports to the effect that the first CTA filing obligations arose three, and not four, years after its passage. The “setting an enforcement date of nearly four years after Congress enacted the law” criticism applies only as to the “not later than” compliance date set for reporting companies preexisting January 1, 2024. Moreover, the CTA legislation contemplated from the beginning a phase-in of up to two years for filings by existing companies; FinCEN shortened that permissible timeline by a full year when it finalized the Reporting Rules. ↑

6. Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). ↑

7. See, e.g., Kelsey Reichmann, Supreme Court Lifts Pause on Corporate Transparency Act, Courthouse News Serv. (Jan. 23, 2025) (“The Supreme Court put a federal financial reporting law back on the books Thursday, forcing companies to disclose information that is used by malign actors to conceal their ownership and facilitate illicit activities.”); Zach Schonfeld, Supreme Court Reinstates Federal Anti-Money Laundering Law, Hill (Jan. 23, 2025) (“The Supreme Court on Thursday agreed to reinstate a federal anti-money laundering law at the federal government’s request as a legal challenge proceeds in a lower court.”); Supreme Court Allows Small Business Registration Rule to Take Effect, Aimed at Money Laundering, Associated Press (Jan. 24, 2025) (“The Supreme Court action allows enforcement of the registration requirement while the Texas case winds through the courts.”); Supreme Court’s Decision Revives Controversial Corporate Transparency Act, Devdiscourse (Jan. 24, 2025) (“The Supreme Court has reinstated a critical requirement for millions of small businesses to register with the Treasury Department, aiming to tackle money laundering and financial fraud.”); Supreme Court Reinstates Corporate Transparency Act Mandate, Se. AgNet (Jan. 24, 2025) (“The U.S. Supreme Court has decided to lift the injunction that temporarily halted enforcement of the Corporate Transparency Act (ACT) reporting requirements, thus now allowing enforcement of the act to move forward.”); NCBA Statement on Supreme Court Decision to Reinstate Dreaded Corporate Transparency Act Mandate, KRVN (Jan. 24, 2025) (“The U.S. Supreme Court’s decision will allow enforcement of the act to move forward.”); SCOTUS Allows Corporate Transparency Act Reporting Requirements to Resume, Morning AgClips (Jan. 24, 2024) (“On Thursday, Jan. 23, 2025, SCOTUS ruled to allow the Government to enforce the CTA, which requires millions of businesses to file BOI reports. The justices stayed, or lifted, the nationwide injunction that had been blocking the CTA’s enforcement. This decision permits the government to proceed with implementing the CTA while its merits are reviewed by the U.S. Court of Appeals for the Fifth Circuit, which is scheduled to hold oral arguments on March 25.”). ↑

8. The Reporting Rules appear at 31 C.F.R. §§ 1010.380(a) et seq. As noted, the “final” BOIR regulations were released in Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498. The final rules followed from Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 69,920 (NPRM), which itself followed from Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17,557 (ANPR). Those “final” regulations detail certain due dates, amended by Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66,730 (Sept. 28, 2023); supplemented with regard to the use of FinCEN identifiers by the release of Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities, 88 Fed. Reg. 76,995 (Nov. 8, 2023); and expanded with regard to the exemption for public utilities (31 C.F.R. § 1010.380(c)(2)(xvi)) in Update to the Public Utility Exemption Under the Beneficial Ownership Information Reporting Rule, 89 Fed. Reg. 83,782 (Oct. 18, 2024)—collectively, the “Reporting Rules.” ↑

9. See infra notes 13–18 and accompanying text. ↑

10. On December 27, 2024, the Fifth Circuit granted the motion for expedited consideration of the Texas Top Cop Shop case and set the following briefing schedule: appellants’ brief is due on February 7, 2025; appellees’ brief is due on February 21, 2025; and appellants’ reply brief is due on February 28, 2025. See Letter from Lyle C. Cayce, Clerk, U.S. Court of Appeals for the Fifth Circuit, to Counsel (Dec. 27, 2024) (Doc. No. 163). Oral argument in Texas Top Cop Shop, Inc. v. McHenry has been scheduled for 10:00 a.m. on March 25, 2025. See Letter from Lyle C. Cayce, Clerk, U.S. Court of Appeals for the Fifth Circuit, to Counsel (Dec. 27, 2024) (Doc. No. 165-2) (case calendar). ↑

11. But see below as to the Smith case. ↑

12. Alternatively, it is possible that the Fifth Circuit, if it rules against the government, would fashion its own relief that would replace that ordered by the district court, that this relief might include a new injunction, and that the government could again apply to the Supreme Court for a new stay. At that point, to the extent that the stay was granted because of concerns about the ability of federal district courts to issue nationwide injunctions, a different result could obtain. ↑

13. Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). ↑

14. See id. at *14 (Doc. No. 30). ↑

15. The Reporting Rules are set forth at 31 C.F.R. §§ 1010.380(a) et seq. See also supra note 8. ↑

16. Reply in Support of Application for a Stay of the Injunction Issued by the United States District Court for the Eastern District of Texas at 17 n.2, McHenry v. Tex. Top Cop Shop, Inc., 604 U.S. —, 2025 WL 272062 (U.S. Jan. 23, 2025) (No. 24A653) (emphasis in original):

    Since the filing of the government’s stay application, another district court has concluded that the Act likely exceeds Congress’s enumerated powers. See D. Ct. Doc. 30, at 33, Smith v. United States Department of the Treasury, No. 24-cv-336 (E.D. Tex. Jan. 7, 2025). That court issued a party-specific injunction prohibiting enforcement of the Act against the plaintiffs alongside a universal stay of the Reporting Rule under Section 705. See id. at 33–34. This Court’s disposition of the government’s application here will likely affect that case as well. ↑

17. In response, the plaintiffs in that case will argue that the relief they have been awarded in their parallel proceeding is independent of whatever action was taken by the Supreme Court in another case, and that no element of issue preclusion arises. ↑

18. See the history of the effective date, supra note 5. It is worth noting that the filing requirements of the CTA have been in effect since January 1, 2024, for existing reporting companies created or registered on or after January 1, 2024, but do not come into effect for reporting companies created or formed before that date (referred to in the CTA as existing entities but described in the Reporting Rules, other administrative pronouncements, and this article as existing reporting companies). Under the Reporting Rules, existing reporting companies were scheduled to become subject to the Reporting Rules on January 1, 2025. As a result of the initial injunction issued in Texas Top Cop Shop, existing reporting companies were not required to file initial BOIRs on January 1, 2025, and the requirement for all information reporting for all reporting companies was stayed. For the short hiatus in the preliminary injunction from December 23, 2024, to December 27, 2025, FinCEN issued a revised schedule that extended the filing dates for all initial BOIRs (in the case of existing reporting companies, to January 13, 2024). As the parties to most of the litigation are existing reporting companies, much of the language of the cases speaks of the initial effective date of the CTA as January 1, 2025. Thus, the status quo ante at the time of the initial preliminary injunction in Texas Top Cop Shop was that reporting companies formed after September 3, 2024, and existing reporting companies were not yet obligated to file initial BOIRs. The Smith preliminary injunction appears to stay the obligation on reporting companies that have filed their BOIRs to update those BOIRs. Its effect on reporting companies that were required to file initial BOIRs before December 3, 2024, but had not done so is not clear. See Houston et al., supra note 2 ↑

19. Small Bus. Ass’n of Mich. v. Yellen, No. 1:24-cv-00314-RJJ-SJB (W.D. Mich. filed Jan. 23, 2025), ECF No. 46 (plaintiffs’ notice of supplemental authority). Likewise, the same order was filed on January 27 in the Boyle case pending in Maine. Boyle v. Yellen, No. 2:24-cv-00081-SDN (D. Me. filed Jan. 27, 2025) (Doc. No. 50) (notice of supplemental authority). Purely as an authorial aside, the Government’s Memorandum in Support of a Motion to Dismiss filed in Small Business Ass’n of Michigan (Doc. No. 31) is a particularly well-written review of why the CTA is a constitutional exercise of Congress’s authority. ↑

20. Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260, 2024 U.S. Dist. LEXIS 36205 (N.D. Ala. 2024), appeal filed, Nat’l Small Bus. United v. U.S. Dep’t of the Treasury, No. 24-10736 (11th Cir. Mar. 11, 2024). ↑

21. Firestone v. Yellen, No. 3:24-cv-1034-SI, 2024 WL 4250192, 2024 U.S. Dist. LEXIS 170085 (D. Or. Sept. 20, 2024), appeal filed, No. 24-6979 (9th Cir. Nov. 19, 2024); see also Firestone, No. 3:24-cv-1034-SI, 2024 WL 5159198, 2024 U.S. Dist. LEXIS 228679 (D. Or. Dec. 18, 2024) (denying injunctive relief pending appeal). ↑

22. Cmty. Ass’ns Inst. v. Yellen, No. 1:24-cv-1597, 2024 WL 4571412, 2024 U.S. Dist. LEXIS 193958 (E.D. Va. Oct. 24, 2024), appeal filed, No. 24-2118 (4th Cir. Nov. 27, 2024). ↑

23. Firestone, No. 3:24-cv-1034-SI; Cmty. Ass’ns Inst., No. 1:24-cv-1597. ↑

24. Hotze v. U.S. Dep’t of the Treasury, No. 2:24-cv-00210-Z, 2024 WL 5248148, at *1 (N.D. Tex. Dec. 30, 2024). It is intriguing that the same logic did not foreclose the injunction issued in Smith. In Hotze, the parties on January 30, 2025, filed a joint motion to stay proceedings (Doc. No. 41); and on January 31, the court issued an order staying the proceeding for thirty days, with directors to file a joint status report one week before the expiration of the stay and to update the court (presumably on an ongoing basis) on the status of the Smith preliminary injunction (Doc. No. 42).

    In passing, we will reference the status of Midwest Ass’n of Housing Cooperatives v. Yellen (a dispute whose style will likely be updated soon), wherein the plaintiffs seek a declaration that housing cooperatives are exempt from the CTA irrespective of their organizational structure. No. 2:24-cv-12929 (E.D. Mich. filed Nov. 5, 2024). On November 26, 2024, a curious order was entered in this case. Subsequent to a status conference held to discuss matters, including the Plaintiffs’ Emergency Motion for Declarator Relief, or Alternatively, Preliminary Injunctive Relief (Doc. No. 17), and responding to the government’s request to hold the case in abeyance pending the decision of the Eleventh Circuit in National Small Business United, the court agreed to the request for an abeyance “provided the government refrain from arresting, jailing, imprisoning, or imposing civil penalties against plaintiffs or individuals affiliated with plaintiffs for any violation of the statute during the period of abeyance.” Id. (E.D. Mich. Nov. 26, 2024) (Doc. No. 26). ↑

25. The CTA provides for a $500 per day civil penalty with respect to willful failures to file a required BOIR. CTA, 31 U.S.C. § 5336((h)(1); see also 31 C.F.R. § 1010.380(g). Willfully is itself a defined term—namely, the “voluntary, intentional violation of a known legal duty.” CTA, 31 U.S.C. § 5336(h)(6). That $500 per day amount is adjusted each year for inflation. Federal Civil Monetary Penalties Inflation Adjustment Act of 1990, Pub. L. No. 101-410 (Oct. 5, 1990), as revised by section 701 of the Bipartisan Budget Act of 2015, Pub. L. No. 114-74 (Nov. 2, 2015); see also FinCEN FAQ K.2 (Apr. 8, 2024). Pursuant to a recent release from FinCEN, for 2025 the civil penalty was adjusted (and increased) to $606 per day. See Federal Crimes Enforcement Network; Inflation Adjustment of Civil Monetary Penalties, 90 Fed. Reg. 5629 (Jan. 17, 2025) (final rule); see also Jay Adkisson, Fearmongering the Civil and Criminal Penalties of Beneficial Ownership Information Reporting, Forbes (Jan. 27, 2025) (discussing the “willful” element of the penalty and fine/imprisonment provisions of the CTA). ↑

26. These deadlines are referenced as applied to domestic reporting companies, but they apply equally to foreign reporting companies first registered in those time periods. See 31 C.F.R. § 1010.380(c)(1)(ii) (definition of foreign reporting company). ↑

27. See 31 C.F.R. §§ 1010.380(a)(1), 1010.380(a)(2); Houston et al., supra note 2, at nn.57–63 and accompanying text. To confirm a point made above, although the preliminary injunction against the Reporting Rules and these deadlines issued in TTCS were set aside by the U.S. Supreme Court, there remains in place as of this writing the similar injunction issued in Smith. ↑

28. Since December 3, 2024, and the issuance of the TTCS preliminary injunction, FinCEN has permitted voluntary filings of initial and updated BOIRs. ↑

29. See Houston et al., supra note 2, at n.21 and accompanying text. ↑

30. Fin. Crimes Enf’t Network, Alert, Ongoing Litigation—Texas Top Cop Shop, Inc., et al. v. McHenry et al., No. 4:24-cv-00478 (E.D. Tex.) & Voluntary Submissions (updated Jan. 24, 2025) (emphasis in original). This alert replaces a far longer alert (which is no longer available on the FinCEN website) that provided thus:

    Alert: Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.) [Updated January 2, 2025]

    On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction. The Department of Justice, on behalf of the Department of the Treasury (Treasury), filed a Notice of Appeal on December 5, 2024 and separately sought a stay of the injunction pending that appeal. . . . On December 31, 2024, the Department of Justice, on behalf of Treasury, sought a stay of the injunction pending the ongoing appeal from the Supreme Court of the United States. In the meantime, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. is once again in effect. FinCEN is complying with—and will continue to comply with—the district court’s order for as long as it remains in effect. As a result, reporting companies are not currently required to file beneficial ownership information with FinCEN. Reporting companies may continue to voluntarily submit beneficial ownership information reports.

    Other Updates

    Texas Top Cop Shop, Inc. is only one of several cases that have challenged the Corporate Transparency Act (CTA) pending before courts around the country.

    As noted in a separate alert, on March 1, 2024, [in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.),] the U.S. District Court for the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining Treasury from enforcing the CTA against the plaintiffs. As a result, the government, even in the absence of an injunction, is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024).

    However, since March 2024, other district courts have denied requests to enjoin the CTA, ruling in favor of Treasury—in particular:

    • On April 29, 2024, in Small Business Association of Michigan, et al. v. Yellen, et al., No. 1:24-cv-314 (W.D. Mich.), the U.S. District Court of the Western District of Michigan, denied a motion for a preliminary injunction.
    • On September 20, 2024, in Firestone, et al. v. Yellen, et al., No. 3:24-cv-01034 (D. Or.), the U.S. District Court for the District of Oregon also declined to issue a preliminary injunction on behalf of plaintiffs—seven individuals—challenging the constitutionality of the CTA. In denying plaintiffs’ motion, the district court found that plaintiffs had not shown a likelihood of success on the merits with respect to their claims that the CTA exceeds Congress’ authority under the Constitution and violates the First, Fourth, Fifth, Eighth, Ninth, and Tenth Amendments. In its opinion and order, the district court noted that enjoining enforcement of the CTA “would interfere with Congress’ judgment, supported by extensive factual findings, about how best to combat money laundering, the financing of terrorism, tax fraud, and other serious crimes that affect the national economy or national security.” Plaintiffs have appealed the court’s decision, and that appeal is pending before the Ninth Circuit.
    • On October 24, 2024, in Community Associations Institute, et al. v. Yellen, et al., No. 1:24-cv-01597 (E.D. Va.), the U.S. District Court for the Eastern District of Virginia likewise denied a motion by plaintiffs, including an organization that represents community associations throughout the country, for a preliminary injunction. In doing so, the district court found that plaintiffs were unlikely to succeed on their claims that (1) Congress overstepped the outer bounds of its commerce power in enacting the CTA; (2) the CTA violates the First and Fourth Amendments; and (3) the statutory exemptions in the CTA relieve community associations of the obligation to report beneficial ownership information. Plaintiffs have appealed the court’s decision, and that appeal is pending before the Fourth Circuit.

    The government continues to believe—consistent with the orders issued by the U.S. District Courts for the District of Oregon and the Eastern District of Virginia— that the CTA is constitutional and will continue defending the law as necessary.

    Fin. Crimes Enf’t Network, Alert, Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.) (updated Jan. 2, 2025) [hereinafter Jan. 2 Alert]. ↑

31. Exec. Order: Regulatory Freeze Pending Review (Jan. 20, 2025). ↑

32. See, e.g., 31 C.F.R. pt. 1010 (specifically, Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities, 88 Fed. Reg. 76,995 (Nov. 8, 2023) (RIN 1506-AB49); Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 83,499 (Nov. 30, 2023) (RIN 1506-AB62); and Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022) (RIN 1506-AB49)). ↑

33. Beneficial Ownership Information, Fin. Crimes Enf’t Network (last visited Feb. 3, 2025). ↑

34. See supra note 18. ↑

35. Heritage Foundation, Project 2025: Mandate for Leadership: The Conservative Promise 707–08 (2023) (“Congress should repeal the Corporate Transparency Act, and FinCEN should withdraw its poorly written and overbroad beneficial ownership reporting rule. Both are targeted at the smallest businesses in the U.S. (those with 20 or fewer employees) and will do nothing material to impede criminal finance. The FinCEN beneficial ownership reporting rule will impose costs exceeding $1 billion annually and is exceedingly poorly drafted. FinCEN itself estimates that more than 33 million businesses will be affected and that costs will be $547 million to $8.1 billion annually.” (citations omitted)). ↑

36. S. 100, 119th Cong. (2025). The bill text is not yet posted on Congress.gov, but it is assumed that it will be identical to the text of the bill submitted in the 118th Congress as S. 4297. See also Press Release, Coach Tommy Tuberville, Tuberville Reintroduces Legislation to Repeal Corporate Transparency Act. Protect Small Businesses (Jan. 15, 2025). In the House, parallel proposed legislation has been introduced by Rep. Davidson (R., Ohio). Press Release, Warren Davidson, Rep. Warren Davidson Re-Introduces the Repealing Big Brother Overreach Act (Jan. 15, 2025). In addition, legislation has been submitted to extend to 2025 the initial filing deadline for reporting companies created or first qualified before January 1, 2024. Protect Small Businesses from Excessive Paperwork Act of 2025, H.R. (not yet assigned), 119th Cong. (2025) (introduced by Rep. Zach Nunn (R., Iowa)); see also Tyson Fisher, Bipartisan Bill Seeks to Delay Beneficial Ownership Information Reporting Deadline, Land Line (Jan. 29, 2025). ↑

37. Brief of Amici Curiae States of West Virginia, Kansas, South Carolina, and 22 Other States in Support of Respondents, Garland v. Tex. Top Cop Shop, No. 24A653 (U.S. Jan. 9, 2025). ↑

38. Brief of Amici Curiae United States Senator Cynthia M. Lummis and Wyoming Secretary of State Chuck Gray in Opposition to the Emergency Application for a Stay, Garland v. Tex. Top Cop Shop, No. 24A653 (U.S. Jan. 10, 2025); Brief of U.S. Senator Thom Tillis and Thirteen Other Members of Congress as Amici Curiae in Opposition to a Stay, Garland v. Tex. Top Cop Shop, No. 24A653 (U.S. Jan. 14, 2025). ↑

39. In a hearing to consider the nomination of Scott Bessent to be secretary of the Treasury, the following exchange occurred:

    Question 55: The Corporate Transparency Act requires reporting of beneficial ownership information to prevent criminals from using businesses to conceal their identities and facilitate illicit activity like money laundering, sanctions evasion, and terrorist financing. The first Trump Administration strongly supported the Corporate Transparency Act, which requires many U.S. companies to report their true, or “beneficial,” owners to a confidential database housed at the U.S. Treasury, stating that the law would “assist law enforcement in detecting and preventing illicit activity such as terrorist financing and money laundering.” Now the Trump Administration is in charge of administering that database, including providing access to it for law enforcement and national security officials.

    A. Do you see the Corporate Transparency Act as an important new tool for the U.S.’ ability to prevent terrorism and to follow the money that finances it?

    B. Do you agree with the authors of Project 2025 that the Corporate Transparency Act should be repealed by Congress?

    C. Will you work with Congress to make sure that the office responsible for maintaining the database, the Financial Crimes Enforcement Network (FinCEN), has sufficient staff, technology, and other necessary funding to make the most out of this new tool?

    D. Absent such action by Congress, will you commit to fully implementing and enforcing the provisions of the Corporate Transparency Act?

    E. Will you commit to retention of FinCEN’s beneficial ownership reporting rule?

    Answer: I am committed to reviewing the regulatory implementation of the CTA to ensure that Treasury meets the law’s objective of combating illicit finance without unduly burdening small businesses as Congress directed. I also believe FinCEN should have the resources needed to fulfill its statutory responsibilities. As you know, the CTA has been enjoined by a federal court, so I think it would be premature for me to comment on any specific next steps until, if confirmed, I have the benefit of consulting with Treasury’s lawyers and we have more clarity from the courts.

    Questions for the Record for Scott Bessent: Hearing to Consider the Nomination of Scott Bessent, of South Carolina, to be Secretary of the Treasury Before the S. Comm. on Fin., 119th Cong. 48–49 (2025) (citations omitted). The CTA did not come up in the course of his live testimony. Scott Bessent Confirmation Hearing, Rev (Jan. 16, 2025). ↑

40. See Jan. 2 Alert, supra note 30. It is interesting to note that the injunction in National Small Business United v. Yellen was raised in an amicus brief in the Texas Top Cop Shop Supreme Court litigation filed by National Small Business United’s attorney, former solicitor general Paul Clement, which argued that the lack of an emergency is evidenced by the fact that there has been no attempt to obtain emergency relief from the temporary injunction in that case. The brief states:

    Either way, a petition for certiorari raising the question whether the CTA is constitutional appears heading this Court’s way—and it should arrive soon, as the Eleventh Circuit expedited its review for the very purpose of issuing a prompt decision.³ In these circumstances, by far the most sensible course is to preserve the preliminary injunction issued by the Eastern District of Texas until this Court can resolve a petition for certiorari arising out of the NSBA’s case in the Eleventh Circuit. The other option on the table—staying the injunction—would pave the way for the government to demand immediate compliance with the CTA even though this Court may declare that very statute unconstitutional on plenary review in a matter of months. It makes no sense for this Court to inflict the very irreparable disclosure-related injury that the CTA’s challengers are seeking to avoid before this Court can review the statute’s constitutionality in the usual course. That is particularly true given the asymmetric nature of the stakes. It would be virtually impossible to un-disclose vast quantities of private information to the federal government if the CTA’s unconstitutionality is eventually confirmed. By contrast, law-enforcement officials have been tackling money laundering for years without access to this information, and the federal government waited 27 months between promulgation of the rule and the initial January 1, 2025 deadline.

    Brief for Amicus Curiae the National Small Business Association in Opposition to Applicants’ Request for a Stay, Garland v. Tex. Top Cop Shop, No. 24A653, at 10–11 (U.S. filed Jan. 10, 2024). It is particularly interesting that footnote 3 therein provides thus:

    If the Eleventh Circuit issues a decision finding the CTA unconstitutional after the change in administration, and if the new administration does not file a petition for certiorari, that too would suggest that no emergency existed here in the first place. ↑

41. Postscript: As noted above, the analysis herein set forth was through noon on February 2, 2025. Be aware that on February 5 the government filed a Notice of Appeal in Smith, supra note 6 (Doc. No. 32). ↑

42. All members of the Business Law Section of the American Bar Association are encouraged to join the Committee on LLCs, Partnerships and Unincorporated Entities, and to then join its ListServ. The committee’s ListServ is active and is a go-to resource on matters involving the CTA, including the litigation challenging its constitutionality. ↑

In the fast-paced world of modern law, new technology is constantly emerging, vying for our attention both professionally and personally. From breakthrough software to rapid advancements in artificial intelligence, we are inundated with news of innovation. This was not always the case. A decade ago there were only a few dozen legal technology providers. Today there are literally thousands of legal technology tools out there, with new ones launching weekly. While change unfolds at a breathtaking rate, it is crucial to discern valuable developments from mere hype—deciphering the genuine signals from the incessant noise.

Lawyers take great pride in meticulous craftsmanship. Delivering high-quality, effective service in a timely manner is not merely a goal; it is essential. Today, there is an increasing expectation that such services are also provided in an efficient manner and, in some cases, along with a better client experience. To meet and exceed these standards, law firms are compelled to stay on top of technological advancements. Not only do clients increasingly expect it, but it is also an important factor for attracting and retaining the best talent. A firm falling behind on tech adoption risks obsolescence, as competitors are quick to leverage new tools to gain an advantage.

Yet, key questions remain: Which tech tools genuinely enhance legal practice, and which ones fit for a particular purpose? Identifying the right tools for your firm requires understanding how they integrate with existing practices, gauging the opinions of fellow lawyers, and weighing the costs involved. The corresponding change management lift should also be assessed and not underestimated—spend without an adoption plan often results in failed innovation, regardless of how magnificent the tech might be. These considerations are essential for making informed decisions.

To help legal professionals with these challenges, the Technology in M&A Subcommittee of the American Bar Association Business Law Section’s Mergers and Acquisitions Committee has stepped forward. Our members have been actively exploring ways to facilitate a better understanding of available technology for lawyers. Our efforts have led to the release of an updated Directory of M&A Technology, which now boasts over 130 tools identified by committee members as helpful to the practice of M&A. This resource is designed to assist any M&A lawyer or firm, regardless of firm size or location, in the United States or around the world, by providing an unbiased compilation of the latest legal tech tools across a wide spectrum of categories, all accessible in one place.

In addition, our subcommittee is eager to identify which technologies are being adopted by M&A practitioners and to what extent. Which tools are proving beneficial, and which fall short? In what ways are these technologies being applied to M&A (and transactional) practice? To gather insights, we launched a brief survey, independent of any legal tech vendor, inviting feedback from ABA Business Law Section members. Your participation is invaluable. We urge you to share your experiences: What enhances your practice, what does not, and why? Please take a few minutes to complete the survey.

It is worth noting how technology has significantly altered law firm expenditure patterns. Not long ago, professional and staff compensation dominated budgets, followed by office space costs. That has changed. Technology now often ranks as the second-highest expense. Perhaps this shift underscores the diminished importance of physical office space, thanks in part to the rise of virtual firms and the adoption of remote work arrangements. Or perhaps it is another indication of the rising cost attributed to tech. Regardless, these trends further highlight the constant presence of technology in our professional lives.

Staying informed and making smart, cost-effective technology investments have never been more important. Your insights shared through this survey will help shape our use and understanding of legal tech. We eagerly anticipate sharing the results and providing future updates to the directory.

Authors: W. Ian Palm, Scott Jablonski, Steve Obenski and Daniel Rosenberg.

Additional ABA Technology in M&A Subcommittee Directory of M&A Technologies Working Group members: Thomas Romer, Will Norton, and Evy Marques.

Contractual frameworks such as the Model Contract Clauses to Protect Workers in International Supply Chains (“MCCs”) drafted by an American Bar Association Business Law Section working group, as well as those provided in the Responsible Contracting Project’s toolkit, are key tools to use in a company’s responsible procurement strategy to address US forced labor enforcement, such as potential detentions of imports pursuant to Withhold Release Orders (“WROs”) under the amended Tariff Act or the Uyghur Forced Labor Prevention Act (“UFLPA”).

The MCCs are a set of template contract clauses that focus on buyer and supplier pre-contract human rights and environmental due diligence (“HREDD”) as part of the procurement process and ongoing joint responsibility for supply chain due diligence. They emphasize finding and fixing any issues—disclosure and remediation—and thus can provide a realistic framework for responsible sourcing. The MCCs were designed to be modular and to allow companies to operationalize their responsible procurement plans.

Members of the ABA Working Group to Draft Model Contract Clauses to Protect Human Rights in International Supply Chains and the Responsible Contracting Project have spoken with US government officials, including representatives from US Customs and Border Protection and the Bureau of International Labor Affairs, regarding their frameworks. These officials have noted their hope that companies implement effective worker-driven, prevention-based models to reduce the necessity for enforcement measures. To do this, companies will need effective tools to identify and prevent labor rights issues in their supply chains. These officials agree that well-crafted contractual clauses may be a helpful tool for companies in this regard—though of course, not a silver bullet.

The number of technology tools assisting companies to learn about their supply chains and inform their responsible procurement decisions continues to grow; the MCCs are a legal tool that creates a framework to operationalize these other tools. The MCCs set out a pragmatic, operational framework of obligations facilitating HREDD and remediation.

This article first addresses why the MCC framework is an effective approach to address human rights issues and labor rights abuses in supply chains. It then discusses how the MCCs address specific areas of concern for regulators.

The MCCs are more effective than unilateral representations and warranties.

The MCCs aim to address known problems arising from the predominant contractual approach in transnational commercial contracts, which consists of impractical, unenforceable representations and warranties. The traditional representation and warranty framework places all responsibility for compliance on the suppliers, who often do not have the resources to comply. This approach has proven ineffective, as it often devolves into a tick-box exercise.

The MCC approach is to establish a framework that facilitates the parties’ cooperation on tasks such as engagement with affected stakeholders;^[1] obtaining accurate data collection and prompt disclosure; and agreeing upon realistic goals at every tier within the supply chain. By contrast, the traditional reps and warranties approach does not allow for much cooperation—and it presumes a static situation of perfection that is nearly impossible for suppliers to achieve without changes in buyer purchasing behaviors.

In the past, importers may have been comfortable simply shifting liability up the supply chain. But importers must now pivot towards a framework that is more effective given the increased enforcement activity from regulators.

The MCCs set out duties for buyers and suppliers to undertake continuing HREDD against the constant threat of adverse human rights impacts. Suppliers must provide appropriate, timely information with proper stakeholder engagement, and buyers should provide commercially reasonable assistance that actually addresses some of the key drivers of human rights issues, such as overly aggressive pricing terms. In addition to provisions that are designed to prevent human rights abuses such as forced and child labor and to encourage the identification and disclosure of actual and potential human rights issues, the MCCs provide a framework for the parties to develop a corrective action plan when issues are revealed.

Rather than focusing on “irresponsible exits” that simply terminate relationships with suppliers when issues are uncovered—a so-called cut and run strategy—the MCCs emphasize the duties of buyers and suppliers towards remediation and efforts to make victims whole.

The MCCs incorporate the UN Guiding Principles on Business and Human Rights (“UNGPs”) and Organisation for Economic Co-operation and Development (“OECD”) requirements for an operational-level grievance mechanism (“OLGM”). They also provide for a set of buyer obligations around issues such as pricing and termination, which acknowledges the key role that buyers have in the incidence of human rights abuses.

The process of establishing appropriate contracts using frameworks such as the MCCs must generate sufficient buy-in from a variety of stakeholders in order to be effective. This must include both stakeholders within an organization (e.g., purchasing, legal, sustainability teams) and external stakeholders (e.g., workers, workers’ organizations, upstream suppliers).

The MCCs address specific concerns of US regulators.

Proactive engagement with suppliers (Information Sharing)

US regulators’ goal is to prevent human rights abuses and facilitate lawful trade while combating illicit trade. While the government will continue to detain violative imports and take the necessary enforcement action, the overarching goal is to decrease the incidence of human rights abuses. Presumably, importers also do not want to contribute to human rights abuses.

The best way to accomplish this is for companies to proactively engage suppliers to integrate anti-forced and child labor as a priority within their business objectives. This is a prevention-based model, rather than an enforcement-based one.

Avoidance of human rights risks requires a shared HREDD approach to identifying vulnerabilities which is found in the MCCs, rather than a framework of unilateral representations and warranties as the former provides more confidence in the data that you are collecting.

Companies need robust and reliable data to determine whether their supply chains have a nexus to forced or child labor. If there is a nexus to forced labor, companies may wish to end this relationship^[2] In both cases, enforceable contractual commitments such as those found in the MCCs will provide useful support.

The MCCs contractually impose proper routine auditing procedures and routine reporting out of the OLGM to uncover issues and contain the scope, severity, and scale of discovered problems, particularly through stakeholder feedback. The MCCs also include an option to contractually require the input of workers and/or workers’ organizations into the structure of and feedback solicited for audit reports.

In addition, the MCCs provide for a remediation framework that doesn’t overly disincentivize revealing issues to your counterparty, as it has been argued such disincentives have resulted in implausible reports of zero issues from ostensibly well-functioning OLGMs. Observers have commented that if the OLGM reporting indicates there are no problems, there is likely a problem with the OLGM. Strengthening such channels of communication is crucial to actually address human rights abuses.

Comprehensive knowledge of supply chain (Mapping)

Companies with complex supply chains first need to undertake comprehensive mapping exercises through several tiers of suppliers to understand where their goods are made and to onboard and screen suppliers. This is a key initial step towards establishing a prevention-based framework.

Cascading down the supply chain is essential to developing a proper map. This is why the MCCs include a clause regarding obligations for a supplier’s upstream suppliers.

Only after identifying risk areas can companies decide to restructure supply arrangements or terminate relationships with problematic suppliers. But we must stress that the goal isn’t irresponsible exit, and this is actually addressed in MCCs.

The MCCs allow termination of an existing relationship if there is a sufficient Schedule P (Human Rights and Environmental Impacts) or Schedule Q (Responsible Purchasing Buyer Code) breach, but they give the supplier a right to cure provided there is no zero-tolerance violation. However, for the most part, a better scenario, one considered to more effectively address human rights abuses, would involve remediating harms when they are discovered. In fact, where the buyer causes or contributes to such harm, the UNGPs and the MCCs impose a duty of remediation on the buyer.

Accurate data collection for UFLPA Applicability Reviews (Tracing):

When submitting documentation for an applicability review (where regulators must decide whether to apply the UFLPA’s rebuttable presumption of forced labor), a company must prove its merchandise is free of inputs from the Xinjiang Uyghur Autonomous Region or companies on the UFLPA Entity List.

This requires proper supply chain mapping—as noted above. More importantly, it requires providing reliable, compelling evidence to show that the products in the detained shipment were produced according to the supply chain map. This requires tracing shipments throughout this map.

To be confident this information is reliable/compelling: (i) it should be provided by entities up and downstream in the supply chain that have a contractually enforceable obligation to do so; and (ii) it should also be provided in accordance with a standard system—rather than an ad hoc compilation of documents with relatively low degree of reliability.

If there’s a standard system where documents are regularly provided, a regulator can investigate a specific shipment in the context of the overall supply arrangement. In contrast, if an importer urgently asks a supplier to haphazardly compile a slew of documents that it has never even considered before, there is a high risk of fatal reliability/authenticity issues.

Addressing issues that are uncovered (Remediation):

Perhaps the most important potential impact of incorporating the MCCs into an organization’s contracts is how the framework facilitates effective remediation.

As noted above, proper HREDD and OLGMs will almost invariably uncover issues given the state of global supply chain practices. Therefore, it’s critical to have a system in place to remediate issues when they are discovered.

Remediation is particularly essential if the importer has a strategic supplier that is (or may be) subject to a WRO. Many human rights advocacy groups have noted that the focus on remediation supports an approach that addresses the harm suffered by stakeholders, rather than an irresponsible exit approach that often results from focusing on termination.

Evidence of regular, ongoing, shared due diligence and reporting mechanisms addressing forced and child labor can help address the concerns that may have led to a WRO. For example, US Customs and Border Protection (“CBP”) modified the WRO it issued against imports of synthetic disposable gloves manufactured by YTY Industry Holdings after finding that it properly remediated the activities that led to the WRO’s issuance. More recently, in August 2024, CBP modified the Yu Long No. 2 WRO concerning imported seafood products.

CBP will only modify a WRO if the entity’s manufacturing is free of all forced labor indicators, not just what CBP identified prior to issuing the WRO. This means remediation must be comprehensive and effective.

Proper remediation requires shared accountability, enforceability, and stakeholder participation—all of which are provided for in the MCCs.

1. It has been observed that corrective/remedial measures where affected stakeholders (such as workers, worker organizations, and affected communities) are directly engaged are preferable to measures that do not include such engagement. ↑

2. It should be noted that international best practice, as reflected in the MCCs, is to end the relationship as a last resort provided you are not in violation of any other regulations. ↑

As of January 14, 2025 all information-filing requirements mandated by the Corporate Transparency Act (“CTA”) are suspended. If, when, and the extent to which this suspension will end is currently being considered by the United States Supreme Court and U.S. Court of Appeals for the Fifth Circuit. This article considers how what might have been anticipated to be a peaceful year-end holiday season saw all three levels of federal courts (District, Circuit, and Supreme), Congress and a bureau of the U. S. Department of Treasury frantically seeking to determine the future and timing of CTA reporting obligations, and how these events might shape future developments of the CTA.

On December 3, 2024, in Texas Top Cop Shop, Inc. v. Garland (“Top Cop District Litigation”)^[3] brought by businesses and an individual owner (“plaintiffs” or “plaintiffs-appellees”)^[4] against the Financial Crimes Enforcement Network (“FinCEN”), the bureau of the United States Department of the Treasury that administers the CTA; the United States Attorney General; and the Secretary of the Treasury (the “government”), the court issued a nationwide^[5] preliminary injunction enjoining the CTA.^[6] In response to the preliminary injunction, on December 23, 2024, FinCEN gave notice it would not enforce the CTA for so long as the injunction were in place.^[7]

In response to the preliminary injunction, on December 5, 2024 the government filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit (“Top Cop Fifth Circuit Litigation”)^[8] and, on December 11, 2024, a Motion to Stay Preliminary Injunction Pending Appeal^[9] in the Top Cop District Litigation. On December 12, 2024, the District court judge ordered the plaintiffs to respond to the government’s motion by December 16, 2024,^[10] and on December 16, the plaintiffs filed a response,^[11] followed by a government reply the next day. ^[12] On the December 17, the District Court judge denied the government’s motion.^[13]

On December 9, the Notice of Appeal that the government had filed with the Fifth Circuit was docketed (Top Cop Fifth Circuit Litigation).^[14] On December 13, the government filed a Motion for a stay of the preliminary injunction pending appeal,^[15] and a Fifth Circuit motion panel requested that the plaintiffs-appellees file a response by December 17, and the government file a reply by December 19.^[16] On December 17, the plaintiffs-appellees filed a Response/Opposition,^[17] and the government filed a Reply on December 19.^[18] On December 23, the motions panel in an Unpublished Order granted the government’s motion for stay of the preliminary injunction pending appeal,^[19] and did not extend the due date for CTA filings.^[20] Shortly after the release of the Unpublished Order, FinCEN issued a BOI Alert (December 23, 2024) extending the filing dates for information reporting to January 13, 2025 or later.^[21] On December 24, the plaintiffs-appellees filed a motion for rehearing en banc,^[22] in response to which the court issued a Court Directive that a Response/Opposition to the motion for rehearing should be filed by December 31.^[23]

The lifting of the preliminary injunction was short-lived. On December 26, 2024, a merits panel of the Fifth Circuit vacated the stay portion of the order of the motions panel, effectively reinstating the preliminary injunction.^[24] The merits panel established a briefing schedule (concluding on February 28, 2025)^[25] and oral arguments (on March 25, 2025)^[26] for a determination of the government’s motion to stay the preliminary injunction. The plaintiffs-appellees’ motion for en banc hearing was dismissed as moot.^[27]

Continuing the flurry of holiday season activity, on December 31, 2024, while the government’s motion for a stay of the preliminary injunction was still pending before the Fifth Circuit, the Solicitor General, on behalf of the government, commenced an action in the United States Supreme Court (the Top Cop Supreme Court Litigation)^[28] by filing an Application for a Stay of the Injunction Issued By the United States District Court for the Eastern District of Texas (“Supreme Court Application for Stay”).^[29] The Supreme Court Application for Stay argues:

1. the district court gave insufficient deference to the presumed validity of laws enacted by Congress;^[30]
2. that the CTA is within Congress’ authority under the Commerce Clause; ^[31]
3. that the Constitutional Necessary and Proper Clause supports Congress’ authority to adopt the CTA;^[32]
4. established law supports that laws may require that persons provide requested information; ^[33]
5. the plaintiffs have not satisfied the high standards required for a facial challenge to the constitutionality of a statute; ^[34]
6. the equities support lifting the stay in that the district court failed to account for the harm to the Government in not allowing the CTA to be enforced as a tool for addressing identified problems such as domestic and international money-laundering and tax evasion (Petition pp. 26-30);
7. that the merits panel of the Fifth Circuit did not apply the correct standards in lifting the stay of the injunction;^[35] and
8. the district court’s nationwide injunction is unwarranted.^[36]

The Supreme Court Application for Stay also invited the Supreme Court to grant certiorari to consider the proper standard for the issuance of a nationwide injunction.^[37] As to the nationwide reach of the preliminary injunction, the Supreme Court Application for Stay at p. 4 argues:

At a minimum, this Court should narrow the district court’s vastly overbroad injunction. A court of equity may grant relief only to the parties before it. The district court violated that principle by issuing a universal injunction purporting to enjoin the Act itself and forbidding the enforcement of the Act even against non-parties.  Several Members of this Court have recognized that such universal relief contradicts Article III and established equitable principles and have urged clarification of these principles in an appropriate case — but the Court’s antecedent determination on a threshold procedural issue or the merits in prior cases has obviated the need to re-solve the remedial question. Because the lower courts need guidance on the propriety of universal injunctions, this Court may additionally wish to treat this application as a petition for a writ of certiorari before judgment presenting the question whether the district court erred in entering preliminary relief on a universal basis.

The Supreme Court Application for Stay was assigned initially Justice Alito, and on January 3 he issued instructions to the plaintiffs-appellees to respond not later than 4:00 pm on Friday, January 10, 2025. That Response Brief was filed well before the deadline, and on January 13 the Government filed a Reply Brief. ^[38]

Thus, the current enforceability and ultimate validity is currently before three federal courts, none of which has reached a final judgment of constitutionality of the statute. After a month of legal contention, the preliminary injunction issued in the Top Cop District Court Litigation is still in effect although that may change at any time. If the preliminary injunction is lifted, when the information disclosures that would have been filed during the hiatus will be subject to whatever administrative grace FinCEN or the acting court chooses to afford them.

The balance of this article discusses the background of the CTA and its implementing reporting regulations and the machinations they have undergone over the year-end holidays, and how this history may offer a clue to what will happen to the CTA in the future.

The CTA: A Grinch-ish “Gift”

As of December 1, 2024, the CTA^[39] as supplemented by final regulations prescribed under it (“Reporting Rule”)^[40] require each reporting company^[41] created or registered^[42] on or after January 1, 2024 (a new entity)^[43] to file a beneficial ownership information report (“BOIR”) with the Financial Crimes Enforcement Network (“FinCEN”), the bureau of the U.S. Department of the Treasury that administers the CTA, on or before ninety days after creation or registration if created or registered in 2024 and thirty days after creation or registration if created or registered after 2024.^[44]

Under the CTA, the Reporting Rule aims to “minimize burdens on reporting companies associated with the collection of beneficial ownership information, including by eliminating duplicative requirements,” while at the same time aiming to “ensure the beneficial ownership information reported to FinCEN is accurate, complete, and highly useful.”^[45] Thus, while there are still many questions about the application of the reporting requirements to reporting companies, FinCEN is actively considering new regulations to make the information it collects more useful to the banking industry.^[46]

Nonetheless, the CTA has been riddled with nuanced problems and counterintuitive applications that have been an irritant (not always minor) for even some simple business organizations. For larger, more sophisticated organizations, the CTA (particularly as implemented by the Reporting Rule) can be a cipher for a number of organizations that, without any obvious reason, are subject to the statute, including (i) homeowners associations that may exempt from BOIR reporting depending upon the federal tax exemption for which they qualify,^[47] (ii) companies that have separated their employees from the organization in which the company’s value is located, (iii) companies in bankruptcy and subject to the oversight of a Chapter 7 bankruptcy trustee, (iv) companies that have wound up their affairs, (v) limited liability companies (“LLCs”) whose organization was never completed by the admission of a member, (vii) limited liability partnerships,^[48] and (viii) companies having multiple classes of ownership. These issues have earned the CTA pride of place as a program that Project 2025 would like to exterminate.^[49]

On-Again, Off-Again, On-Again Christmas Celebrations

Top Cop is not the only litigation has been filed challenging the CTA and the Reporting Rule. The CTA has been under attack from many small businesses and small business associations as being unconstitutional either as an enactment beyond the power of Congress or an invasion of the constitutional rights of small businesses and their owners. Numerous cases in which these issues are being considered are currently pending in federal courts around the country.

In one case in the early part of 2024, National Small Business United v. Yellen (“NSBU”),^[50] the trial court, a federal district court in Alabama, entered a final declaratory judgment concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the CTA against those plaintiffs. FinCEN then issued an alert (“NSBU Alert”)^[51] to the effect that FinCEN would not enforce the CTA against the plaintiffs as long as the judgment remains in effect. The government appealed NSBU (although not the injunction separately) to the U.S. Court of Appeals for the Eleventh Circuit; the case is ongoing.^[52] In addition, FinCEN extended the filing deadlines for reporting companies located in the areas designated both by the Federal Emergency Management Agency (“FEMA”) as qualifying for individual or public assistance and by the Internal Revenue Service as eligible for tax-filing relief.^[53] In all other respects, the Reporting Rule continued to govern the BOIR reporting regime.

Later, in the fall of 2024, two other federal district courts declined to issue an injunction and preliminarily found the CTA constitutional.^[54]

At the same time the government was filing its appeal to the Fifth Circuit, Congress was considering a one-year extension on the filing deadline for reporting companies formed or created before January 1, 2024 (“existing entities”) as part of a continuing resolution, but the extension was deleted from the final enactment of the American Relief Act, 2025.^[55]

On Christmas Eve, after a hectic preholiday week punctuated by furious activities by all three branches of government,^[56] the infelicitous rolling out of the principal aspects of the CTA came to rest with some reporting companies formed after September 3, 2024 being granted by FinCEN an extension of time within which to file their initial BOIRs and the balance of the CTA reporting regime continuing in effect. Based upon BOI Alert (December 23, 2024), the due dates for initial BOIRs were set as follows:

Following the Fifth Circuit’s order lifting of the stay of the preliminary injunction, FinCEN updated the BOI Alert (December 23, 2024) on December 27, 2024 (thereby making it the BOI Alert (December 27, 2024)) to include language discussing the Top Cop Fifth Circuit Court Order.^[64] Among other things, BOI Alert (December 27, 2024) no longer mentioned the extension of due dates described in BOI Alert (December 23, 2024). Still, the due dates in the BOI Alert (December 23, 2024) remain of some interest because they suggest how FinCEN may respond if the preliminary injunction is lifted—that is, by affording a limited extension of time to some of the reporting companies that have been affected by the preliminary injunction.^[65]

All I Want for Christmas Is for the CTA to Have No Teeth

And so, as we have passed January 1, 2025, the date on which all existing entities were to have filed their BOIRs, where are we and why?

While the exact number of reporting companies that have filed their BOIRs is uncertain, pleadings in the Top Cop District Litigation suggested that at the time the preliminary injunction was issued on December 3, 2024, just approximately ten million of the estimated thirty-six million reporting companies had filed. Since this date, BOIRs have not been required, although FinCEN has continued to accept them.^[66] The hiatus in the requirement that BOIRs be filed will continue unless and until (i) the Fifth Circuit grants the government’s motion to stay the preliminary injunction, (ii) the Top Cop District Litigation is finally resolved in the government’s favor on the merits, or (iii) the government prevails on the Supreme Court Application for a Stay either because Supreme Court stays the preliminary injunction or because it determines that the preliminary injunction is inappropriate. The CTA is certainly not dead; those who have not complied when they were required to before December 3, 2024, are not exonerated; and, as demonstrated by the Top Cop motions panel Order,^[67] all of the requirements may come roaring back with very little time to prepare the required BOIRs.

Why are we in this situation? Is it because there is overwhelming support for money laundering, terrorist financing, and human trafficking? Is it because Americans, who readily surrender personal identifying information on technology platforms, are concerned about their privacy? We think not.^[68] Rather, the CTA has been adopted to satisfy an international consortium of law enforcement officials, most of whom operate under national legal systems that already require much more transparency of organizations than does the United States, particularly considering the strongly state-centric regulations of organizations. Similarly, compliance with Financial Action Task Force (“FATF”) mandates have entailed an attempted redefinition of the role of lawyers from honest advocates and advisers of clients to agents of law enforcement.^[69] Interestingly, since the adoption of CTA based upon the FATF’s mandates, the United States has narrowly elected an administration that is highly suspicious of international mandates and that has had its anticipated policies described in a document that advocates for a repeal of the CTA.^[70]

Over the four years that FinCEN has had to implement has declined to address many issues that have troubled those attempting to comply with the CTA—or, when addressing the issues, it has provided unworkable answers.^[71] These unworkable rules are imposed on millions of organizations at a cost to the organizations of billions of dollars, by FinCEN’s own reckoning. Thus, rather than trying to find an efficient way of dealing with the problems that FinCEN was trying to address, the CTA merely attempts to impose an international standard on U.S. organizations. What could possibly go wrong?

1. Other titles considered for this update included “What Could Possibly Go Wrong?”; “Season’s Greetings, Where’s Your Pleadings?”; “It Seemed Like a Good Idea at the Time”; “If You’re Not Confused, You Aren’t Paying Attention”; “Nailing Jell-O^® to the Wall”; and “How I Spent My Christmas Vacation.” In keeping with the spirit of the holiday, Chat GPT (as posted by Jeffrey Unger) chimed in with the following:

   Oh, FinCEN’s a whirlwind, it’s buzzing with schemes,
   With reports and compliance and anti-fraud dreams!
   It watches the dollars, the nickels, and dimes,
   To catch all the sneaky and dubious crimes.

   But lo, the law stumbled—it faced a tough fight,
   Declared unconstitutional, it dimmed FinCEN’s light.
   An injunction was granted; the work hit a wall,
   No chasing bad money, no watching at all!

   Then the injunction was lifted, the chase was revived,
   FinCEN back at it, its mission survived.
   But oh, once again, it was halted in court,
   Enjoined once more—what a legal report! ↑

2. The authors received thoughtful comments from Jay Adkisson, Bill Callison, Eric Dante, Cathy Krendl, Herrick Lidstone, Chip Lion, and Kevin Shepherd, based upon which we rewrote many parts of this article to add new grammatical errors and fallacious conclusions for which those commenters are not responsible. ↑

3. Texas Top Cop Shop, Inc., et al v. Garland et al. 4:24-cv-00478 – ALM (U.S. E. D. Texas (Sherman)). We below make reference to certain pleadings and other documents by reference to the document docket numbers. ↑

4. Plaintiffs are Texas Top Cop Shop, Inc.; Russell Straayer; Mustardseed Livestock, LLC; Libertarian Party of Mississippi; National Federation Of Independent Business, Inc.; and Data Comm For Business, Inc. ↑

5. The preliminary injunction purports to enjoin the CTA everywhere it may apply, hence nationwide. The government and some courts discuss injunctions of this breadth as “universal” injunctions because they also apply to all potentially affected, and not just the plaintiffs. ↑

6. D.C. Doc. 31, Top Cop District Litigation amended for a minor clarification on December 5, 2024 by Doc. 33.; Texas Top Cop Shop, Inc. v. Garland,__ F. Supp. 3d __, 2024 U.S. Dist. LEXIS 218294, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024, amended Dec. 5, 2024). ↑

7. FinCEN has been posting information on its position with respect to filing requirements as “Alerts” (“BOI Alerts”) on its BOI Beneficial Ownership Information Homepage (https://www.fincen.gov/boi). As circumstances change, FinCEN replaces BOI Alert, so that references in this paper will be to BOI Alerts updated to a specific date. In this case, the BOI Alert is BOI Alert (December 6, 2024),  Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only (“While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”). Although superseded BOI Alerts such as this one are no longer available on BOI Beneficial Ownership Information Homepage, they may helpful background on how FinCEN’s position evolved and provide useful guidance as to how FinCEN may respond to a lifting of the preliminary injunction. ↑

8. D.C. Doc., 32, Top Cop District Litigation amended for a minor clarification on December 6, 2024 by Document 34. ↑

9. D.C. Doc. 35. ↑

10. D.C. Doc. 36. ↑

11. D.C. Doc. 37. ↑

12. D.C. Doc. 38. ↑

13. D.C. Doc.40; Texas Top Cop Shop, Inc. v. Garland, __ F. Supp. 3d __, 2024 U.S. Dist. LEXIS 227810 (E.D. Tex. Dec. 17, 2024). ↑

14. Texas Top Cop Shop, Inc., et al v. Garland et al. 24-40792 (Fifth Cir.). ↑

15. C.A. Doc. 21, Top Cop Fifth Circuit Litigation Document 21 in which the government prayed that the preliminary injunction be stayed during the appeal or, “[i]n the alternative, the injunction should be narrowed to the companies that have been specifically identified in the district court or, at a minimum, to members of NFIB [National Federation of Independent Business].” ↑

16. C.A. Doc. 25. ↑

17. C.A. Doc. 34. During the period that the motions panel was considering the government motions, over a dozen non-parties sought to file amicus briefs in support of the plaintiffs-appellants. ↑

18. C.A. Doc. 100. ↑

19. C.A. Doc. 140. 2024 U.S. App. LEXIS 32565 (Fifth Cir. Dec. 23, 2024) (appeal from the U.S. District Court for the Eastern District of Texas). The panel consisted of Judges Stewart, Haynes, and Higginson. All three agreed to stay (i.e., rescind) the nationwide preliminary injunction, but Judge Haynes would have preserved it for the benefit of the parties before the court as had the court in NSBU. The opinion noted,

    Judge Haynes joins in part and disagrees in part. She agrees for an expedited appeal and agrees that a national injunction is not appropriate here, so she would grant a temporary stay of the preliminary injunction pending the decision of the merits panel regarding whether to deny a stay pending appeal as to the non-parties. However, she would deny the temporary stay as to the parties (while, of course, deferring to the merits panel on this point as well), including the members of NFIB, as long as their identities are disclosed to the government.

    Id. at n.1. ↑

20. Id. at n.7 (“The Businesses warn that lifting the district court’s injunction days before the compliance deadline would place an undue burden on them. They fail to note, however, that they only filed suit in May 2024 and the district court’s preliminary injunction has only been in place for less than three weeks as compared to the nearly four years that the Businesses have had to prepare since Congress enacted the CTA, as well as the year since FinCEN announced the reporting deadline.”). ↑

21. BOI Alert (December 23, 2024) Alert: Updates to Beneficial Ownership Information Reporting Deadlines—Beneficial Ownership Information Reporting Requirements Now in Effect, with Deadline Extensions. ↑

22. C.A. Doc. 142. ↑

23. C.A. Doc. 147. ↑

24. C.A. Doc. 160 (“in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED.”). ↑

25. C.A. Doc. 163. ↑

26. C.A. Doc. 165. ↑

27. C.A. Docs. 174 (motion to withdraw petition) and 181 (granting the motion to withdraw petition). ↑

28. United States Supreme Court (24 A. 653) the docket of which is available at https://www.supremecourt.gov/docket/docketfiles/html/public/24a653.html. ↑

29. The Supreme Court Application for Stay is available at https://www.supremecourt.gov/DocketPDF/24/24A653/336329/20241231163238372_24aGarland%20v%20Texas%20Top%20Cop%20Shop. Supreme Court Application for Stay p. 1, praying “for a stay of the preliminary injunction issued by the U.S. District Court for the Eastern District of Texas (App., infra, 19a-97a), pending the consideration and disposition of the government’s appeal to the United States Court of Appeals for the Fifth Circuit and, if the court of appeals affirms in whole or in part, pending the timely filing and disposition of a petition for a writ of certiorari and any further proceedings in this Court.” ↑

30. Supreme Court Application for Stay pp. 10-13. ↑

31. Supreme Court Application for Stay pp. 13-16. ↑

32. Supreme Court Application for Stay pp. 17-25. ↑

33. See, e.g., Supreme Court Application for Stay pp. 20 (“Congress has often required private individuals and entities to provide information to the government, and this Court has upheld many such requirements under the Necessary and Proper Clause.”). ↑

34. Supreme Court Application for Stay pp. 25-26. ↑

35. Supreme Court Application for Stay pp. 30-31. ↑

36. Supreme Court Application for Stay pp. 31-36. ↑

37. Supreme Court Application for Stay pp. 36-38. ↑

38. Future pleading will appear on the docket for the case at https://www.supremecourt.gov/docket/docketfiles/html/public/24a653.html.

    =https://www.supremecourt.gov/DocketPDF/24/24A653/336997/20250110130810648_Garland%20v%20TTCS%20No%2024A653%20Respondents%20Response%20in%20Opposition%20to%20Application%20for%20Stay.pdf

     

    https://www.supremecourt.gov/DocketPDF/24/24A653/337159/20250113150232824_Texas%20Top%20Cop%20Shop%20Reply.pdf ↑

39. 31 U.S.C. § 5336. ↑

40. This article employs the term used FinCEN and the courts in the litigation described herein for the regulations implementing the reporting provisions of the CTA, although there are many rules within these regulations, and they have been released in more than one adoption. The Reporting Rule appears at 31 C.F.R. §§ 1010.380(a)(1) et seq. The “final” beneficial ownership reporting rules were released in Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022). Those “final” regulations detail certain due dates, amended by Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, 88 Fed. Reg. 66,730 (Sept. 28, 2023); supplemented with regard to the use of FinCEN identifiers by the release of Use of FinCEN Identifiers for Reporting Beneficial Ownership Information of Entities, 88 Fed. Reg. 76,995 (Nov. 8, 2023); and expanded with regard to the exemption for public utilities (31 C.F.R. § 1010.380(c)(2)(xvi)) in Update of the Public Utility Exemption Under the Beneficial Ownership Information Reporting Rule, 89 Fed. Reg. 83,782 (Oct. 18, 2024)—collectively, the “Reporting Rule.” ↑

41. Subject to certain exemptions, a reporting company is

    a corporation, limited liability company, or other similar entity that is . . . created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe or . . . formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.

    31 U.S.C. § 5336(a)(11). ↑

42. In this article, created or registered refers to the act by which an organization becomes a reporting company, as defined above. If an organization ceases to be exempt from the CTA reporting regime, it is unclear how the rules discussed in this article apply. The Reporting Rule provides that “[a]ny entity that no longer meets the criteria for any exemption under paragraph (c)(2) of this section shall file a report within 30 calendar days after the date that it no longer meets the criteria for any exemption.” 31 C.F.R. § 1010.380(a)(1)(iv). The CTA does not expressly address this situation, providing limited updating requirements for certain exempt entities having an ownership interest in a reporting company (31 U.S.C. § 5336(b)(2)(B)) or being an exempt entity by reason of the inactive entity exception. Newly nonexempt organizations should have been protected during the nationwide preliminary injunction in the same way as are entities that have been created or registered. ↑

43. 31 U.S.C. § 5336(b)(1)(C). ↑

44. As originally promulgated, the Reporting Rule would have required all initial BOIRs filed for reporting companies created on or after January 1, 2024, to be filed within thirty days. That deadline was extended to ninety days. Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024, supra note 21. ↑

45. 31 U.S.C. § 5336(b)(4)(B). ↑

46. The CTA instructs FinCEN to develop regulations that will “to the greatest extent practicable . . . confirm[] beneficial ownership information provided to financial institutions to facilitate the compliance of the financial institutions with anti-money laundering, countering the financing of terrorism, and customer due diligence requirements under applicable law.” 31 U.S.C. § 5336(b)(1)(F)(iv)(II). The banking community, having the greatest access to the financial operations of its customers, is very interested in being able to shift the responsibility for customer due diligence to others. ↑

47. A homeowners association that is tax-exempt under I.R.C. §501(c)(4) is exempt from CTA filing while one that is tax-exempt under I.R.C. §528 is not exempt from CTA filing, although both homeowners associations may otherwise be identical. See FinCEN FAQ C.10 (June 10, 2024) at https://www.fincen.gov/boi-faqs#C_10. ↑

48. See Thomas E. Rutledge & Robert R. Keatinge, LLPs Are Not CTA Reporting Companies, Bus. L. Today (Oct. 10, 2024). ↑

49. See The Heritage Foundation, Project 2025, Mandate for Leadership: The Conservative Promise 707–08 (2023) (“Congress should repeal the Corporate Transparency Act, and FinCEN should withdraw its poorly written and overbroad beneficial ownership reporting rules. Both are targeted at the smallest businesses in the U.S. (those with 20 or fewer employees) and will do nothing material to impede criminal finance. The FinCEN beneficial ownership reporting rules will impose costs exceeding $1 billion annually and is exceedingly poorly drafted. FinCEN itself estimates that more than 33 million businesses will be affected and that costs will be $547 million to $8.1 billion annually.”). ↑

50. 721 F. Supp. 3d 1260 (N.D. Ala. 2024), appeal filed, Nat’l Small Bus. United v. U.S. Dep’t of the Treasury, No. 24-10736 (11th Cir. Mar. 11, 2024). ↑

51. BOI Alert (Jan. 2, 2025) Alert: Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), (“[T]he government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.”). ↑

52. Nat’l Small Bus. United, No. 24-10736. Oral argument of the case took place on September 27, 2024. ↑

53. BOI Alert (undated) Alert: FinCEN Has Issued Five Notices Extending the Filing Deadlines to Submit BOI Reports for Certain Reporting Companies in Response to Hurricane Milton, Hurricane Helene, Hurricane Debby, Hurricane Beryl, and Hurricane Francine, FinCEN (last visited Jan. 3, 2025). ↑

54. See Firestone v. Yellen, 134 A.F.T.R.2d 2024, 5683, 2024 WL 4250192, 2024 U.S. Dist. LEXIS 170085 (Sept. 20, 2024); Cmty. Ass’n Inst. v. Yellen, 2024 WL 4571412, 2024 U.S. Dist. LEXIS 193958 (D. Or. Oct. 24, 2024). These decisions have been appealed to, respectively, the U.S. Courts of Appeal for the Ninth and Fourth Circuits. ↑

55. As initially introduced on December 17, 2024, 118 H.R. 10545 provided at section 122:

    Extension of Filing Deadline for Certain Pre-Existing Reporting Companies. Section 5336(b)(1)(B) of title 31, United States Code, is amended by striking “before the effective date of the regulations prescribed under this subsection shall, in a timely manner, and not later than 2 years after the effective date of the regulations prescribed under this subsection,” and inserting “before January 1, 2024, shall, not later than January 1, 2026.”

    As a result of political jockeying, this provision was not included in the final bill, which was enacted. See also Katie Lobosco & Tami Luhby, Here’s What’s In and Out of the Government Funding Agreement, CNN Pol. (Dec. 21, 2024). ↑

56. Three branches of government counts the brief skirmish over the continuing resolution, discussed above. ↑

57. The CTA provides thus:

    In accordance with regulations prescribed by the Secretary of the Treasury, any reporting company that has been formed or registered before the effective date of the regulations prescribed under this subsection shall, in a timely manner, and not later than 2 years after the effective date of the regulations prescribed under this subsection, submit to FinCEN a [BOIR].

    31 U.S.C. § 5336(b)(1)(B). This potential two-year period (which would have expired on January 1, 2026) was reduced by the Reporting Rule to one year after the effective date of the Reporting Rule. 31 C.F.R. § 1010.380(a)(1)(iii) (“Any domestic reporting company created before January 1, 2024 and any entity that became a foreign reporting company before January 1, 2024 shall file a report not later than January 1, 2025.”). BOI Alert (December 23, 2024), Alert: Updates to Beneficial Ownership Information Reporting Deadlines—Beneficial Ownership Information Reporting Requirements Now in Effect, with Deadline Extensions, provided, “Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)” FinCEN (Dec. 23, 2004). ↑

58. The CTA provides that “[i]n accordance with regulations prescribed by the Secretary of the Treasury, any reporting company that has been formed or registered after the effective date of the regulations promulgated under this subsection shall, at the time of formation or registration, submit to FinCEN a [BOIR].” 31 U.S.C. § 5336(b)(1)(C). ↑

59. Reporting companies created or registered in the United States on or after September 4, 2024, that had a filing deadline between December 3, 2024, and December 23, 2024, were given until January 13, 2025 to file their initial BOIRs with FinCEN. ↑

60. These reporting companies were obligated to timely file their initial BOIRs before the temporary injunction issued. This simply confirms that while the temporary injunction provided relief for those for whom the deadline had not yet arrived, FinCEN took the position after the stay of the preliminary injunction that the injunction did not affect the due date for those already not in compliance with the deadline. ↑

61. Reporting companies created or registered in the United States on or after December 3, 2024, and on or before December 23, 2024, were given an additional twenty-one days from their original filing deadline to file their initial BOIRs with FinCEN. ↑

62. Reporting companies created or registered in the United States on or after December 24, 2024, and on or before December 31, 2024, were given 90 to file their initial BOIRs with FinCEN. ↑

63. 31 U.S.C. § 5336(b)(3)(ii) and 31 C.F.R. § 1010.380(b)(4)(ii) require those individuals and reporting companies that choose to obtain a FinCEN identifier to update the information that they have supplied in order to obtain the FinCEN identifier to reflect changes and corrections within thirty calendar days. Presumably, the nationwide preliminary injunction suspended enforcement of penalties for violating this requirement, but nothing in BOI Alert (December 23, 2024) explicitly tolled this thirty-day requirement. ↑

64. See BOI Alert (December 31, 2024) see note 7 Alert: Impact of Ongoing Litigation—Deadline Stay—Voluntary Submission Only, provided the following information:

    On December 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in the case of Texas Top Cop Shop, Inc. v. Garland, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. FinCEN immediately issued an alert notifying the public of this ruling, and recognizing that reporting companies may have needed additional time to comply with beneficial ownership reporting requirements, FinCEN extended reporting deadlines. On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN. ↑

65. In its Supreme Court Application for a Stay of the Injunction Issued By the United States District Court for the Eastern District of Texas at page 9 (“Recognizing that reporting companies may need additional time to comply with the Act given the period when the preliminary injunction was in effect, FinCEN extended the reporting deadlines in certain respects, including by extending the deadline for entities formed before 2024 from January 1, 2025, to January 13, 2025. See C.A. Doc. 105 at 1-2, NSBU v. United States Department of the Treasury, No. 24-10736 (11th Cir. Dec. 24, 2024).”). ↑

66. It is reported that ss of January 3, 2025, FinCEN had received some 13.7 million BOIR filings (although it uncertain how many of those filings were initial BOIRs of existing entities). ↑

67. This was subsequently undone by the Top Cop Fifth Circuit Court Order. ↑

68. As recently noted by Jay Adkisson, the information required by the CTA is “no more onerous than one arranging an international flight.” Jay Adkisson, Unusual Fifth Circuit Self-Reversal Sows Confusion for BOI Reporting, Forbes (updated Dec. 30, 2024). ↑

69. See Am. Bar Ass’n, Resolution 100 (adopted Aug. 2023); see also Robert R. Keatinge, Comments on Changes to Rule 1.16, SSRN (Oct. 4, 2024). ↑

70. The prior administration published support for the CTA. See Statement of Administration Policy: H.R. 2513—Corporate Transparency Act of 2019, as Amended by Manager’s Amendment, Am. Presidency Project (Oct. 22, 2019). The present administration doubled down on that support when the Solicitor General signed onto the New Years’ Eve Supreme Court filing defending the CTA and seeking the stay or modification of the preliminary injunction. It is worthy of note that many cite the support expressed by Marco Rubio, the presumptive incoming secretary of state, for the CTA. Press Release, Sen. Marco Rubio, Rubio, Colleagues Urge Treasury to Fully Implement Corporate Transparency Act (May 10, 2022). A letter sent by Senators Rubio and Elizabeth Warren to U.S. Treasury Secretary Janet Yellen and FinCEN calls for implementation of “Rubio’s Corporate Transparency Act (CTA), which was signed into law in 2020 (P.L. 116-283).” Id. In considering the importance of this position in the incoming administration, it should be noted that the letter not only was coauthored by Warren (D-MA) but also was cosigned by Senators Chuck Grassley (R-IA), Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Bob Menendez (D-NJ), and Bill Cassidy (R-LA). It is unclear whether bipartisan support for the CTA will be a benchmark of the incoming administration, or whether those legislators who previously supported and defended it will change their position if the new administration signals otherwise.

    . ↑

71. One of the clearest examples is the conflict between the requirement that the BOIR be true, complete, and correct and the fact that at times it will be impossible to obtain the information required to be included. Rather than craft a workable resolution of this conundrum, FinCEN ignores the problem because it is inconvenient. See Notice of Information Collection; Request for Comments, 88 Fed. Reg. 67,443 (Sept. 29, 2023) (FinCEN effectively says that allowing a partial filing with a description of unavailable information “would incorrectly suggest to filers that it is optional to report required information, and that reporting companies need not conduct a diligent inquiry to comply with their reporting obligations.”). Thus, rather than providing guidance to clarify that ongoing diligence is necessary, the Reporting Rule simply disregards the problem. See also Robert R. Keatinge & Thomas E. Rutledge, Impossible Things: Compliance with the Corporate Transparency Act When Beneficial Owners or Company Applicants Are Nonresponsive, Bus. L. Today (Dec. 16, 2024). ↑

In Canadian mergers and acquisitions (M&A) transactions, especially those involving the purchase of shares, the issue of unpaid vacation pay to employees on incentive compensation (such as commissions and bonuses) is often overlooked during diligence—yet it has the potential to lead to significant post-closing liability.

Understanding the Issue

In Canada, provincial employment standards legislation requires that employers pay vacation pay to employees on all remuneration earned, where remuneration is comprised not only of base salary, but also incentive compensation like bonuses, commissions, and other performance-based earnings. Despite the statutory requirement, many businesses overlook this obligation as it relates to payments on incentive compensation. This may occur for a variety of reasons:

1. Lack of awareness. There appears to be a misconception that vacation pay is payable only on base salaries, and that any “extras” such as commissions, bonuses or other performance-based earnings do not trigger any vacation pay entitlements.
2. Incorrect interpretations of employment law. Even among those who understand that incentive compensation may attract the payment of vacation pay, there is a common misunderstanding that vacation pay is not payable on incentive compensation if such compensation was paid at the company’s discretion. This is analysis is, unfortunately, only partly true. Generally speaking, vacation pay is payable on all wages—including incentive compensation like commissions and bonuses—unless the incentive compensation payments were (i) wholly at the discretion of the employer, and (ii) not related to hours, production, or efficiency. In other words, if bonuses are discretionary but are tied in any way to hours, production, results, or efficiency (i.e., performance), such payments are regarded as “wages” for the purposes of employment standards legislation and attract vacation pay requirements. 
3. Administrative oversight. It is conceivable that a company’s human resources, administrative, or accounting function is not set up in a way that contemplates the payment of vacation pay to employees on the portion of their wages tied to their performance-based earnings.

The Current Landscape

In recent years, there has been a noticeable and steady rise in class action litigation against Canadian employers for failing to pay vacation pay on employees’ bonuses and commissions. Consistent with employment standards legislation, workers in various sectors are increasingly challenging their employers’ compensation practices, arguing that vacation pay should be calculated on total earnings, including bonuses and commissions, rather than just their base salary.

A key example of this growing trend is the ongoing RBC class action lawsuit,^[1] one of several proposed class actions targeting banking and insurance companies for unpaid vacation pay on incentive compensation, with more than a billion dollars at stake. In RBC, the plaintiffs are arguing that their vacation pay entitlements should have factored in all performance-based earnings (including commissions and bonuses), not just base salary.

Ongoing class actions like RBC are noteworthy because their outcome has the potential to set a precedent that could open the floodgates for similar claims across Canada—whether by way of further class actions or individual claims. Regardless, the Canadian legal landscape is shifting as workers are increasingly seeking to ensure they are being compensated fairly and in line with employment standards legislation, with claims regarding vacation pay entitlements as the most recent example. This growing trend reflects broader shifts in labor rights advocacy and a heightened awareness of employees’ statutory rights in Canada.

Relevance to M&A

From an M&A perspective, it is imperative to ensure that proper diligence is conducted to confirm that the target has been historically compliant with its vacation pay obligations. If Canadian employees have previously been deprived of their vacation pay entitlements, a buyer could be on the hook for significant post-closing liabilities if the noncompliance comes to light. Courts are reluctant to deprive employees of their legal entitlements, so a buyer’s exposure can become material very quickly insofar as it may involve the correction of past underpayments (or nonpayments) dating back to an employee’s date of hire. Given that incentive compensation is often a key component of employee compensation packages, the financial impact can be substantial.

Cross-Border M&A Implications

In cross-border M&A transactions involving a Canadian parent and a US subsidiary, complexities can arise regarding vacation pay obligations, especially when Canadian employees are temporarily working in the US. While US law typically governs employees of a US subsidiary, Canadian employment standards—including in respect of vacation pay entitlements—may still apply to Canadian employees working in the US on secondment or temporary assignment.

For example, if a Canadian employee is working in the US part of the year, there may be uncertainty regarding whether such employee’s vacation pay is calculated under Canadian or US law. Although US vacation policies differ significantly from Canadian standards, it is crucial for Canadian employers to ensure compliance with both US and Canadian vacation pay obligations during the employee’s assignment in the US. Failure to do so could expose the company to liability if vacation pay is not correctly calculated or paid in line with Canadian employment standards.

Mitigating the Risk

For both buyers and sellers in an M&A transaction, understanding the potential risks for unpaid vacation pay on incentive compensation is crucial. Sellers should ensure that their HR and payroll practices are in full compliance with Canadian employment standards before entering into negotiations. A thorough due diligence process should include a review of vacation pay accruals and payments, particularly as they relate to performance-based incentive compensation.

For buyers, it is essential to work with legal advisors who are familiar with the nuances of Canadian employment law and the risks associated with noncompliance with Canadian vacation pay requirements. For M&A deals that have a cross-border component, buyers should conduct thorough due diligence to identify any potential vacation pay liabilities for employees working in both countries. In particular, buyers should diligence the target’s vacation pay accruals to ensure that they have been properly documented, even for employees temporarily working in the US, to mitigate the risk of post-closing exposure.

Engaging in early discussions about these potential liabilities can help structure the deal in a way that minimizes exposure for the buyer, including by way of addressing the concern in the employment representations and warranties, or including a specific indemnity regarding exposure for historical noncompliance. A buyer may also opt to procure representations and warranties insurance as a risk mitigation tool, but it should be aware that insurers in the Canadian market are live to the issue, and so buyers should be prepared to address any potential risk during underwriting.

Conclusion

The issue of unpaid vacation pay on incentive compensation is an often-overlooked risk in Canadian M&A transactions, despite that the issue has the potential to result in a significant post-closing liability. It is imperative that transacting parties conduct fulsome diligence to identify whether there is any exposure, and to address this issue proactively.

1. Cunningham v. RBC Dominion Securities, 2022 ONSC 5862 (CanLII). ↑

On December 17, the Federal Trade Commission (FTC) finalized its “Rule on Unfair or Deceptive Fees” (Junk Fees Rule), designed, the FTC noted, to prohibit bait-and-switch pricing and mandate clear and conspicuous price disclosures in the live-event ticketing and short-term lodging industries. While similar in nature to some of the junk fee rules finalized by the Consumer Financial Protection Bureau (CFPB), the FTC’s Final Rule targets industries outside of the CFPB’s authority and highlights the Biden administration’s continued focus on all things junk fees, even in the waning moments of the Biden presidency.

To Whom Does the Junk Fees Rule Apply?

Initially, the FTC had proposed the Junk Fees Rule apply to any “business,” which it defined as “an individual, corporation, partnership, association, or any other entity that offers goods or services, including, but not limited to, online, in mobile applications, and in physical locations.” After receiving significant comments, the FTC narrowed the definition to businesses that offer “covered goods or services,” which the Junk Fees Rule defines as “live-event tickets or short-term lodging, including temporary sleeping accommodations at a hotel, motel, inn, short-term rental, vacation rental, or other place of lodging.”

Notably, the FTC declined to include other industry-specific carve-outs to live-event tickets or short-term lodging businesses that are otherwise covered by the Junk Fees Rule.

What Does the Final Rule Do?

The Junk Fees Rule does not prohibit any type or amount of fee or outlaw any specific pricing strategy. Hiding or misrepresenting a fee, however, would constitute an unfair or deceptive practice. A covered business that charges a fee must “tell consumers the whole truth up-front about prices and fees” by providing clear and conspicuous price and fee disclosures in a manner that is “easily noticeable (i.e., difficult to miss) and easily understandable by ordinary consumers.”

To accomplish this:

1. the disclosure must be made in the same way the communication or advertisement is made (i.e., visual, audible, or both);
2. a visual disclosure, by size, contrast, location, and length, must “stand out” from other text;
3. an audible disclosure must be delivered in volume, speed, and cadence sufficient for an ordinary consumer to hear and understand it;
4. disclosures in online communications (e.g., the internet or mobile app) must be “unavoidable”;
5. the disclosure must use diction and syntax understandable to the ordinary consumer and must be in every language in which the representation or communication is;
6. the disclosure must comply with all of these requirements in each medium used;
7. the disclosure must not be contradicted or mitigated by anything else in the communication; and
8. when a communication targets a specific audience, “ordinary consumers” as defined by the Junk Fees Rule includes members of that specific audience.

The Junk Fees Rule also requires covered businesses to prominently display the “total price” of a covered good or service. The “total price” is the maximum total of all fees or charges a consumer must pay for any good(s) or service(s) and any mandatory ancillary good or service, except that government charges, shipping charges, and fees or charges for any optional ancillary good or service may be excluded.

What Comes Next?

The FTC voted 4–1 in favor of publishing the Final Rule, but the dissenter, Commissioner Andrew Ferguson, is a notable one. Commissioner Ferguson was recently tapped by President-Elect Trump as the FTC’s next chair. In his dissenting statement, Commissioner Ferguson took no issue with the substance of the Junk Fees Rule. Rather, his dissent focused on his belief that “the time for rulemaking by the Biden-Harris FTC is over.”

That being said, Commissioner Ferguson did appear to leave the door open for enforcement of the Junk Fees Rule during the Trump Administration, noting:

My vote, however, should not be understood to state my position on the Final Rule’s merits, or on whether the Commission under President Trump should enforce the Final Rule. On the merits, Commissioner Holyoak correctly points out that the Final Rule bears little resemblance to the flagrantly unlawful version of the rule the Commission proposed more than a year ago. The Final Rule addresses practices and industries for which the Commission has some evidence of prevalence as Section 18 requires. It is therefore a significant improvement over what the Commission originally threatened to inflict on the American economy.

Nevertheless, because the Junk Fees Rule is subject to the Congressional Review Act (CRA), it may never take effect. Under the CRA, Congress has the ability to enact a resolution of disapproval, which, if done, would invalidate the Junk Fees Rule and prevent its implementation. But, while it is likely that Congress will use the CRA to invalidate some of the CFPB’s “junk fees” rulemaking, the FTC’s Junk Fees Rule is narrow, as Commission Ferguson noted, and it does not cap fees. It is also likely to be extremely popular with the public, as evidenced by the overwhelmingly positive comments the FTC received during the comment period. So, it is not clear whether a Republican Congress would feel compelled to add this one to the CRA pile.

If Congress does not invalidate the Junk Fees Rule, it will take effect 120 days after its publication in the Federal Register.

Data and analytics company LexisNexis, a division of RELX, has embraced the rule of law as central to its corporate mission. According to its website, its business “is driven by the mission to advance the rule of law around the world, which is vital for building peace and prosperity in society.” In 2019, the company established the LexisNexis Rule of Law Foundation to coordinate its rule of law work. Leading these efforts has been Ian McDougall, president of the LexisNexis Rule of Law Foundation and former LexisNexis general counsel, who is also a member of the World Justice Project (WJP) Rule of Law Leadership Council. WJP Executive Director Elizabeth Andersen caught up with Ian recently to learn more about LexisNexis’s commitment to the rule of law. An edited transcript of their conversation follows. 

Elizabeth Andersen: Tell me the origin story of the LexisNexis Rule of Law Foundation. How did LexisNexis come to prioritize the rule of law?

Ian McDougall: When LexisNexis Chief Executive Officer Mike Walsh appointed me as general counsel twelve years ago, he asked me to think about the company’s good work on various volunteer projects in over one hundred countries and consider how that work could be organized under a coherent theme that the company could unite behind. It seemed to me that all of these projects were related in one way or another to the rule of law, so that became our theme. 

As a first step, we, like WJP, had to decide what we mean by the rule of law. Our approach was to undertake historical research about how this idea had developed in different parts of the world. We wanted to get the world—through history—to tell us what the rule of law meant, rather than the other way around. The common themes that emerged make up the four pillars of the rule of law that we use: equality before the law, an independent judiciary, access to the law, and access to remedy.

We were careful to be as nonpolitical as possible and to avoid difficult language and topics, so we talk about access to remedy, rather than “justice,” because we are avoiding very interesting but sometimes philosophical debates that can sidetrack us. We don’t include, for example, “human rights” or “democracy” in our definition, because these are, as far as we are concerned, outcomes that depend on the rule of law as we define it. This approach means that I can go to meetings with Chinese officials and to meetings with U.S. senators and make exactly the same speech. This nonpolitical approach is also important to making this something that the business community can get behind. 

You’ve been a real advocate for businesses taking up the rule of law cause. How do you make the case? 

Well, you have to talk to business in the language of business. That means saying or proving things like: When the rule of law is stronger, per capita GDP is stronger. You have a bigger marketplace and more opportunity to sell your goods. When the rule of law is stronger, you can protect the investment that you’re making in that country. 

Using these as avenues to interest the business community—to be able to say quite openly, this is not only the right thing to do, but it’s in your naked self-interest to do it right. You want to operate in this country; how do you do that when there is no facility to protect your investment or protect your intellectual property or do any of these basic things that mean that you have half a chance of getting a return on your investment? The answer is you need to get involved with us in advancing the rule of law, because that gives you the foundation for business investment. 

How does LexisNexis advance the rule of law, and what do you recommend to other businesses interested in advancing this cause? 

We do it by a very simple strategy of two points. First, deploy your core skills. In other words, take what you’re already good at and deploy that capacity to advance one or more of the four pillars of the rule of law. Second, work with partners who can bring something to the table. That’s where the Foundation comes in. It has served as a focal point for us to organize our capacity to contribute to the rule of law and as a vehicle for building key partnerships. 

And how does that work in practice? Give us some concrete examples of assets that LexisNexis has deployed in this work. 

We are a legal publisher, so quite naturally, we have helped countries to create the consolidated laws of their country. Sometimes in post-conflict situations, a country’s been destroyed, and there is hardly any record of what laws were in place before. We’ve had editorial teams go to the country, do research, see what exists, see where the gaps are, and then help the country to draft laws that fill the gaps in what they have or don’t have. They produce a consolidated set of laws.

We have also done judge training, helping judges understand how to operate in a rule of law context, to be thinking about the underlying principles they ought to be advancing in their judgments.

An important thing for the legal community is not to think too narrowly about the skill sets you have. Whenever you talk to a group of lawyers, the first thing they talk about is pro bono legal advice. There is so much more that can be done by people with legal education than that, important though it is. I’ve mentioned editorial work and teaching, there’s also project management—these kinds of skills can be deployed. When I say core skills, I don’t want people to think too narrowly, that a lawyer’s only core skill is to give free legal advice. It’s much, much wider than that; a huge range of activity can be done. 

As an example, LexisNexis has produced a coloring book for young children, explaining the “ABCs” of the rule of law. Each page of the coloring book has a little statement about the importance of the rule of law that relates to the picture to be colored. We’ve just received a request for ten thousand of these coloring books to be distributed to schools in Uganda. It’s an example of someone at LexisNexis thinking in a legal frame of mind but deploying another skill that they had—in this case, artistic ability. 

I helped found the UN Committee on Business for the Rule of Law. One of the things we created was a toolkit with some examples of what companies have done. There was a motorbike company, for example. How can a motorbike company advance the rule of law? They found a project where pro bono legal advice was being given, but it was hard for their partners to reach difficult-to-get-to places. They donated their motorbikes to enable lawyers to get to remote villages to deliver legal advice. There are all kinds of ways that businesses can think about contributing. 

And is it only the lawyers at LexisNexis, or are others in the business active in this work? 

Everyone can get involved. We have something called a project board. When a rule of law idea comes up, they post to the project board what jobs they need and appeal for people to join the project and volunteer their time. It’s important to remember that when we’re talking about the core skills of an especially large organization, that involves a large range: accounting, project management, and management generally, to name just a few. 

What are the potential pitfalls that a business might contemplate if they were to follow your lead, and how would you recommend navigating them? 

If you want to advance the rule of law around the world, you may have to try to engage with places that most people are trying to avoid. You’re trying to do things that are basically nation building, and sometimes you are going to have to speak to people who are not nice. It sounds like a risky thing to do, until you get a reputation that helps people understand what you’re doing. That’s the advantage of working through an organization like the LexisNexis Rule of Law Foundation, because then the motivations behind what you’re doing become obvious.

What do you say to the business leader who is concerned that engaging on rule of law issues might harm their business relations, cause political risk, or otherwise disadvantage them? 

We have to remember that there are many places around the world where it is just impractical for an individual, whether that be an individual company or an individual person, to take action. That’s why you have to work in a collective way, through organizations or associations. By working through an organization, you can start to make this an issue. Once it becomes an issue, then people start talking about it. Once people start talking about it, then you’re starting to move opinion and you’re starting to create the environment for action. 

Is there a project of the foundation of which you are most proud? 

One that we often cite is the Eyewitness to Atrocities app, which is a collaboration with the International Bar Association (IBA). The International Criminal Court noted that there are many bits of video information around the world online that show bad things happening that they can’t use as evidence because they’re not verified. The app was created to location stamp, time stamp, and encrypt video information about war crimes and crimes against humanity so that it would be admissible to a court. When the user does that, it gets sent to a Lexis server like a secure vault, which is then held for review by an appointed panel of IBA human rights lawyers. If the user’s phone happened to be confiscated, there’s no data left on the phone that the eyewitness app was ever used. 

It became a flagship for us because very soon after it was launched, it was used in support of successful International Criminal Court prosecutions of two people from the Democratic Republic of the Congo for crimes against humanity and war crimes. We know it works. 

That is an example of us advancing one of the four pillars of the rule of law (access to remedy, in this particular case), deploying our core skills (in this case, technology), and working with a partner (the IBA), in order to deliver a successful rule of law project.

How has the rule of law work benefited your company? 

Recruitment, retention, and morale go through the roof when people are a part of these projects. People want to join the company because it has this mission at its core. We know of technologists who could join the other big technology companies and choose to join us because they want to be involved in things like this. Whenever we do employee surveys and test the temperature of employee morale, top of the list every time is the rule of law stuff.

When I was recruiting lawyers to my legal team fifteen years ago, the questions they would ask at the end of the interview were: Is there a bonus? How much holiday do I get, and does this come with a health scheme or pension? Now the question I get asked is how to get involved in rule of law projects. It’s totally transformed the conversation in recruitment. 

One last question: Is there anything about the way in which this work has played out that has surprised you? 

I think one surprise for me has been the degree of enthusiasm that this work generates. It’s tremendous to see the impact that it has had on the people involved in the projects. It really is wonderful to see, and also it’s given us as the company the opportunity to be involved in some amazing experiences.

“Tapping Core Business Skills to Advance the Rule of Law: A Conversation with LexisNexis Rule of Law Foundation President Ian McDougall” is part of a series on the rule of law and its importance for business lawyers created by the American Bar Association Business Law Section’s Rule of Law Working Group. Read more articles in the series.

APPENDIX A

Issues for Lawyers to Consider in Legal Technology Agreements

Legal technology agreements are not always abundantly clear, but consider addressing the following issues:

1. Three types of data – original, derived and usage data
2. How this data can be used, other than for the benefit of the system
3. What “access rights” non-lawyers have
4. What can the software provider aggregate and extrapolate from the data, and specifically, in instances where a law firm is uploading data into an AI system, confirmation that either the data will only be used to train models for the law firm’s use or the data will not be used for training at all
5. How data is being delivered between the parties
6. Where it is being stored to inform compliance with sovereignty requirements and data residency requirements?
7. Specify how data can be stored for each of your different regions and then the global framework
8. How does the user access the data across different regions without pulling data inadvertently from one location to other privacy policies and other protocols?
9. How does the information get into the system?
10. Storage requirements
11. Data retention requirements
12. Removal requirements and controls
13. Control of data the lawyer inputs
14. Control of new data and right to remove (complicated by cloud technology from different providers), and as implicated by GDPR
15. Specific provisions regarding how data can be used, what derivative works can be created, what sort of aggregated de identified data can be leveraged in any sorts of contracts
16. If the agreement is silent, assume this information can be used in different way
17. “Derivative Works” provision, critical because part of the benefit of the solution is to provide the lawyer a derivative work, such as a fully compiled PDF version of the document with its appropriate signature pages; this is difficult because the vendor wants to make sure that the lawyer can do everything needed or promised by the technology
18. Clarify no other uses of the data
19. Add specific permissions around client confidential information
20. Data residency requirements that tell the lawyer exactly where the data will be and cannot be shifted between regions
21. Specify that all “Customer Data” (or “Company Content”) is owned by the customer and define customer data; any exceptions must be clearly spelled out.
22. Confirmation whether there are exceptions to the otherwise applicable rules around data storage and access for the purposes of abuse monitoring or similar (e.g. to guard against hate speech or terrorism).

The Consumer Financial Protection Bureau (CFPB) recently finalized a rule that will subject the country’s most active digital wallets to ongoing supervision by the agency. Will the CFPB’s new supervisory authorities be a game changer, or is this action much ado about nothing?

Overview of the Digital Wallet Larger Participant Rule

The rule identifies “general-use digital consumer payment applications” subject to supervision as any nonbank that provides 50 million consumer payment transactions, in U.S. dollars, to multiple unaffiliated persons in a year, regardless of the payment method used to fund the payment.

Consumer payment transactions include any transfer of funds by a consumer to another person for personal, family, or household purposes, whether the funds belong to the consumer or are made by extending credit, e.g., from a deposit account or credit card, respectively.

Payment functionality includes both

• funds transfer functionality—receiving funds from a consumer in order to transmit them to a third party (e.g., a “staged wallet” where funds are obtained and then remitted), or accepting from a consumer and transmitting payment instructions; and
• payment wallet functionality—when payment account details or credentials are stored and transmitted to facilitate a consumer payment transaction, e.g., when a digital wallet stores tokenized payment credentials and passes them to a merchant in a tap-to-pay transaction.

Excluded payment transactions include

• payments solely to repay a debt
• international money transfers and securities and commodities transfers
• payments to purchase goods or services from the wallet provider, i.e., first-party payments, or when making donations to a fundraiser selected from a wallet provider
• certain prepaid accounts, e.g., health savings accounts and gift certificates

Consequences of the CFPB’s Supervision of Digital Wallets

In the end, this will leave roughly seven companies subject to ongoing supervision by the CFPB, covering 98 percent of the digital wallet market.

This could be a game changer for a few reasons:

Full visibility for digital wallets. In the short term, companies subject to supervision for offering digital wallets will be subject to exams that evaluate all their activities related to consumer financial products and services—e.g., data access and use activities subject to new Section 1033 personal financial data rights obligations, data security and sharing activities under the Gramm-Leach-Bliley Act, lending activities under the Truth in Lending Act, marketing, and other activities subject to the general prohibition on unfair, deceptive, or abusive acts and practices. While the CFPB will likely focus on payment activities, the broad scope of services provided in digital wallets today—think driver’s licenses, boarding passes, concert tickets, student IDs, and more—could directly or indirectly involve financial products or services, and the commingling of these data within a single wallet could be an area of focus.

Increased visibility of known problem areas. Over the longer term, the CFPB will gain a better understanding of the full range of digital wallet activities and other developing practices of digital wallet providers, including details of their relationships with third parties. Risks highlighted in the final rule relate to Regulation E error resolution obligations of digital wallets and the commingling of financial data with other data for marketing (e.g., email, calendar, health, fitness, and other data stored on a mobile device), among others. The supervision of larger participants could cause the CFPB to search for those risks throughout the industry, creating a trickle-down effect on the broader market. In fact, the CFPB stated in the final rule that supervisory highlights will be published periodically to share insights from examinations of these larger participants with the broader market.

Leaving open the potential for action on digital currency. In limiting the final rule to only cover U.S. dollar transactions, the CFPB sidestepped its potential exertion of supervisory jurisdiction over digital currency or digital asset wallets, leaving open the possibility that digital currency or digital asset transactions could be subject to the CFPB’s jurisdiction over the transmission or exchanging of “funds” under the Dodd-Frank Act.^[1]

On the other hand, this larger participant rule could be much ado about nothing for a few reasons:

Top wallets are already well known to the CFPB. The seven companies now subject to supervision have been on the CFPB’s radar and have likely been subject to requests for information in the past, both directly (see the CFPB’s 1022 order requesting information about digital wallet activities in 2021 and the resulting report released in 2023 highlighting the role of big tech firms in mobile payments) and indirectly (e.g., banks could already be required to share information about their digital wallet arrangements with their supervisors, including the CFPB and other federal regulators).

Supervisory activities are slow, isolated, and largely confidential. Supervisory activities are a long slog. Supervision will be limited to a handful of large digital wallet providers, conducted in a deliberately slow and carefully structured way. This supervision shouldn’t directly impact the many third parties that interact with those wallets, though some trickle-down effects are possible in the medium to long term.

The change in administration could slow-roll implementation. With the coming change in administration, the final larger participant rule could be subject to rejection by Congress under powers granted to it under the Congressional Review Act, though it’s unclear if there’s support for such a move in Congress at this time. Assuming the final rule survives such a challenge, the CFPB’s budget is likely to come under scrutiny, and its limited resources might not be directed towards newer areas such as this, where risks are less apparent or aren’t clearly defined.

1. See 88 Fed. Reg. 80197, 80202 (November 17, 2023). ↑