The correct approach balances risk mitigation with practical business reality. The jurisdiction risk is a significant red flag that must be addressed through a formal risk-based approach. Applying a higher risk rating and implementing targeted enhanced monitoring (like reviewing invoices and payments related to that specific supplier) is a proportionate control. Outright rejection or forcing a change of supplier may not be commercially reasonable initially and cuts off the opportunity to monitor the activity. Standard due diligence would be insufficient given the identified risk.

The scenario describes classic smurfing (also known as structuring), where a large sum of money is broken into smaller, less conspicuous amounts to avoid triggering reporting thresholds. The use of multiple locations and the consistent amount just below the threshold are key indicators. While the destination country may be relevant for other risks, the core behavior described is the act of structuring itself.

The core risk from a PEP stems from their ability to abuse their official position for private gain. Therefore, the level of influence, authority, and access to state resources or decision-making is the primary risk driver. While the other factors (asset size, jurisdiction, and time out of office) are important secondary considerations in a risk-based assessment, they are evaluated in the context of the inherent risk posed by the individual’s former or current role.

This correctly identifies the fundamental rationale for ongoing monitoring within a risk-based framework. Customers’ circumstances, business activities, and risk profiles change over time. A legitimate business at onboarding could later be compromised or engage in illicit activity. Ongoing monitoring is designed to identify these deviations from expected behavior (red flags) that warrant further investigation. The other options misrepresent the purpose as a mere regulatory checkbox, an unrealistic guarantee of perfection, or a non-compliance function.

The primary new ML risk is the introduction of a new asset class (securities) that can be used in the later stages of money laundering. Layering involves moving funds through complex transactions to disguise their origin. Integration involves placing the ‘cleaned’ funds into the legitimate economy. Converting cash or wallet funds into securities is a classic integration method. The feature creates a new avenue for this, significantly altering the firm’s risk assessment. While the other points may be operational considerations, they are not the core, inherent AML risk of the product itself.

The activity described—collecting funds from numerous third parties and transmitting them internationally—is the core function of a money transmitter. If the client is not licensed as an MSB and is obscuring the nature of these transactions, it is a major red flag for an unlicensed, possibly illicit, funds transfer operation. This poses significant sanctions, fraud, and money laundering risks. The other options, while possible, are less directly aligned with the specific activity pattern of collecting and forwarding funds for others.

Client-specific risk factors pertain to the inherent characteristics of the customer (the respondent bank) itself. The ownership structure and transparency of beneficial ownership are fundamental to understanding who ultimately controls and benefits from the customer, directly impacting its risk profile. The other options are examples of product/service risk (wire transfers, USD clearing volume) and geographic risk (presence in high-risk jurisdictions).

Sanctions screening often involves fuzzy matching, and names can be transliterated differently (Ahmed/Ahmad, Hassan/al-Hasan). A professional investigation is required to examine all available information (full name, aliases, address, other identifiers) to make a final determination. Automatically blocking based on a name alone or dismissing due to non-matching secondary fields are both incorrect procedures. The risk-based, procedural step is to escalate for qualified investigation before taking definitive action.

The Travel Rule (FATF Recommendation 16) is the key requirement for VASPs. It mandates that originating VASPs obtain and hold required originator and beneficiary information, and transmit that information to the beneficiary VASP (and sometimes intermediary VASPs) during or before the transaction. This is analogous to the rule for wire transfers in traditional finance, aiming to maintain transparency in the VA ecosystem. The other options describe other potential obligations but are not the definition of the Travel Rule.

The correct approach balances risk mitigation with practical business reality. The jurisdiction risk is a significant red flag that must be addressed through a formal risk-based approach. Applying a higher risk rating and implementing targeted enhanced monitoring (like reviewing invoices and payments related to that specific supplier) is a proportionate control. Outright rejection or forcing a change of supplier may not be commercially reasonable initially and cuts off the opportunity to monitor the activity. Standard due diligence would be insufficient given the identified risk.0