Federal appeals court makes controversial decision about the Corporate Transparency Act: 'Many heads spinning'

In late December, the U.S. Court of Appeals for the Fifth Circuit reinstated a nationwide preliminary injunction that would pause federal enforcement of the Corporate Transparency Act and its "reporting rule" while the case is being decided, Mondaq reported. 

This ruling could mean businesses, including shell corporations, do not have to reveal their true owners, which could be used to mask a number of illegal activities, including harmful environmental practices.

What happened?

To help reduce financial crimes and illegal business activities, including money laundering, terrorist financing, corruption, and tax fraud, Congress passed the Corporate Transparency Act (CTA) on January 1, 2021. The CTA required businesses to reveal their owners and officers, and file beneficial ownership information (reporting rule) to the U.S. Financial Crimes Enforcement Network (FinCEN). 

The CTA went into effect on January 1, 2024. However, by early December, the Act was ordered to be put on temporary hold by the U.S. District Court for the Eastern District of Texas, according to Holland & Knight. December saw a myriad of conflicting federal rulings on whether to enforce the Act or not.

"It has been a busy month for FinCEN and the courts considering the CTA, leaving many heads spinning," the Mondaq report read. 

The latest ruling by the U.S. Court of Appeals for the Fifth Circuit has blocked nationwide enforcement of the Act and its reporting rule. 

Why is the Corporate Transparency Act important?

Without this Corporate Transparency Act, companies involved in illegal and or disgraceful environmental activities, such as pollution or illegal deforestation, can hide behind shell corporations to avoid tarnishing their name. On paper, they are not associated with the company carrying out those actions, which means they can abandon all responsibility for it. 

For example, who takes responsibility for ignoring environmental regulations surrounding toxic waste dumping if it's found to be done by an untraceable shell corporation? Six million gallons of untreated wastewater was recently dumped into the Connecticut River, affecting the physical health of local residents. 

Satellite images are showing illegal deforestation wiping out a significant portion of the Amazon Rainforest. 

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Without traceability, there is no accountability. 

What can I do to help?

While the fate of the Corporate Transparency Act is still yet to be decided, you can get involved by helping to bring awareness to what's happening with the Act. Encourage discourse that educates others on how this could negatively impact climate issues. You can also support organizations such as Global Witness, which tracks and exposes cases of environmental exploitation. You can also back political candidates that support environmental rights.

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