The Corporate Transparency Act, which took effect on January 1 and requires some family offices to report details about their ownership to the government, has been ruled unconstitutional by a federal judge in Alabama. However, the impact of the ruling on family offices is unclear.
The court did not issue a national injunction but instead prohibited the government from enforcing the CTA against the plaintiffs in the case.
“Financial Crimes Enforcement Network (FinCen) has clarified that it will comply with the court’s order, but it has not stopped enforcing the Act as to other parties,” says Nathan D. Imfeld, senior counsel at Foley & Lardner LLP in Milwaukee. “The ruling significantly muddies the waters for family offices that would otherwise be required to file beneficial ownership information with FinCen under the CTA. This is particularly true for family offices where the underlying beneficial ownership is both highly confidential and is unlikely to change, such as where ownership is held by individual shareholders or family trust vehicles. These offices are the ones where even a one-time disclosure is likely to cause discomfort for family members.”
Still, most existing entities (those created in 2023 or earlier) have until January 1, 2025, to file, giving them time to wait and see what happens with a likely appeal.
“This is not the last word by a long shot,” Imfeld says.
Read more:
- Family Business: Corporate Transparency Act compliance: It’s not over until the Supreme Court rules
- New York Times: Judge’s Ruling Sets Back Law Meant to Fight Money Laundering
- The National Law Review: Federal Court Strikes Down the Corporate Transparency Act as Unconstitutional
- Wolters Kluwer: Corporate Transparency Act ruled unconstitutional: What it means for Beneficial Ownership Reporting