What does the CDD/MDD rule define as a "legal entity"?

The CDD (Customer Due Diligence) and MDD (Minimum Due Diligence) rule defines a "legal entity" specifically as a corporation, limited liability company (LLC), or a similar entity that creates public documents. This definition is pivotal in the context of financial institutions and their obligations under anti-money laundering (AML) regulations.

Legal entities are critical in establishing transparency within the financial system, as they are typically required to provide documentation that verifies their formation, ownership structure, and operational nature. This facilitates a more thorough understanding of any risks associated with engaging in financial transactions with these entities.

Moreover, differentiating between legal entities and individuals is essential in applying the appropriate due diligence measures. While individuals (natural persons) and other forms of business structures, such as sole proprietorships and unincorporated associations, exist, they do not meet the specific criteria set by CDD/MDD rules for what constitutes a legal entity. This focus on entities that can publicly document their formation and operations allows for better monitoring and adherence to compliance regulations, thereby supporting the overarching goals of the BSA (Bank Secrecy Act) and related laws in preventing illicit activities.