On January 1, 2021, Congress passed new legislation, known as the Corporate Transparency Act (CTA), as part of the Anti-Money Laundering Act of 2020 within its yearly National Defense Authorization Act. The purpose of the Act is to mandate certain corporate entities to report vital information about their stakeholders, executive management, and the individuals responsible for entity creation to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, or FinCEN for short. This information has been provided by law firm Winstead PC.
Under the CTA, it is required for commercial entities, newly formed or previously registered, to submit a report to FinCEN that identifies each ‘beneficial owner’ and ‘applicant’ of the entity by their full legal name, date of birth, residential or professional address, and a unique identification number. The Act defines a ‘beneficial owner’ as an individual who directly or indirectly holds a substantial interest in or control over the entity in question. In this case, ‘substantial interest’ can be identified through ownership means or having a significant control or influence over the entity.
A key aspect of the Act is the definition of an ‘applicant’. According to the CTA, an applicant is a person who registers or files for the creation of the entity or who completes the entity’s registration process to do business in the United States. The term does not cover those individuals who act merely as agents, nominees, intermediaries, or custodians on behalf of another individual.
Implementing this level of transparency is an attempt by the government to combat illegal activities such as money laundering and tax evasion. The Act seeks to provide clearer insight into the true ownership of corporate entities, which, in turn, could make it more difficult for illegal activities to thrive behind a cloak of corporate anonymity.