Which situation would most likely increase the inherent risk of a corporate customer?

A customer's expansion into international business operations is a significant trigger for an increase in inherent risk. This change introduces several critical risk factors, most notably jurisdictional risk. The new country or countries of operation may have weaker Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) regulations, higher levels of corruption, or be subject to international sanctions. Cross-border transactions are inherently more complex and less transparent, making them more attractive for illicit activities. Therefore, a financial institution must re-evaluate the customer's risk profile and likely apply Enhanced Due Diligence (EDD) measures to mitigate these newly introduced risks.

A. A junior-level employee becoming a Politically Exposed Person (PEP) presents minimal risk to the corporate entity itself, as such an individual typically lacks significant control or influence over company funds or decisions.

B. Opening an additional cash management account is a normal business activity and does not, by itself, fundamentally alter the customer's risk profile. The risk is determined by the transactions, not the number of accounts.

C. A beneficial owner's company going public on a major exchange, such as one in the US, generally decreases risk. This is because it subjects the owner and their business to greater regulatory scrutiny and transparency requirements.

1. ACAMS CKYCA Certified Know Your Customer Associate Study Guide. Chapter 2

"The Risk-Based Approach." This chapter details the core components of a customer's risk profile

identifying geographic location and cross-border business activities as primary drivers of inherent risk. It specifies that operating in or transacting with multiple jurisdictions

especially those with weaker controls

elevates a customer's risk rating.

2. Financial Action Task Force (FATF). (2014). Guidance for a Risk-Based Approach for the Banking Sector. Paris: FATF/OECD. On page 19

Section 3.2.2

it is stated that customer risk factors include the geographic location of their business and their customers. The guidance emphasizes that cross-border operations require heightened scrutiny as part of a risk-based approach.

3. Basel Committee on Banking Supervision. (2014). Sound management of risks related to money laundering and financing of terrorism. Basel: Bank for International Settlements. Paragraph 24(d) identifies "customers in geographic locations that are known for high-risk of ML/FT" as a key risk category requiring specific attention. A customer's expansion abroad directly introduces this geographic risk factor.