Client Update | What Israelis Need to Know About a US Court Ruling that the CTA is Unconstitutional

On March 1, 2024 a US federal court¹ ruled that the US Corporate Transparency Act (“CTA”) is unconstitutional. The purpose of this update is to discuss what Israelis need to know about the ruling and how, if at all, it will affect them. The law itself may have significant implications for many Israeli businesses operating or investing in the US – see our previous client update (here) for further details.

Background
The CTA requires domestic and foreign “Reporting Companies” to file beneficial ownership information reports (“BOI Reports”) with the US Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). For the purposes of this update, suffice it to say that the any legal entity (company, corporation, LLC, limited partnership, etc..) incorporated in the US, or incorporated outside of the US but which registers to do business there, may be a Reporting Company. In addition, Israeli individuals and companies, even if they are not themselves Reporting Companies, may be Beneficial Owners of Reporting Companies and, as a result, be required to provide personal information which will be filed with FinCEN as part of a Reporting Company’s BOI Reports.
For more information about the CTA and what it means for Israelis please see our earlier client update.

What Changed?
On March 1, 2024 a US federal court ruled that the CTA is unconstitutional and granted the plaintiffs’ motion for summary judgment against the government. Importantly, the court enjoined (prohibited) the enforcement of the CTA against the plaintiffs but it did not enjoin enforcement of the CTA generally.
In response to the ruling, on March 4, 2024, FinCEN issued a statement which included the following:

“…the 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.” (emphasis added)

It is worth emphasizing that, in its statement, FinCEN presented a closed list of persons who are not required to file beneficial ownership reports. The clear implication is that everyone else remains obliged to comply with the CTA and failure to do so in a timely manner may result in the imposition of civil and criminal sanctions pursuant to the CTA.

What’s Next?
The government will almost certainly appeal the judgement and may ask the appellate court to stay (freeze) the trial court’s injunction pending the outcome of the appeal. In parallel, other persons and groups believing themselves to be harmed by the CTA, may file similar lawsuits in other federal courts and it’s not inconceivable that far broader injunctive relief could result, the effect of which could even be a prohibition on the enforcement of the CTA nationwide. The only thing that appears entirely certain is that the legal wrangling around the CTA is far from over and anyone impacted by the CTA should watch for news coming out of the US court system.

Practical Implications
Except for the persons covered by the district court’s injunction, it may be advisable going forward to assume that the CTA remains in force and act accordingly. Please pay particular attention to the deadlines for filing BOI Reports as set out in our prior client update (generally, December 31, 2024 for Reporting Companies organized or registered prior to January 1, 2024 and 90 days from incorporation or registration for Reporting Companies formed or registered on or after January 1, 2024).