DEFINITION of 'Jurisdiction Risk'

The risk that arises when operating in a foreign jurisdiction. In recent times, jurisdiction risk has focused on banks and financial institutions who are exposed to the risk that some of the countries where they operate may be high-risk areas for money laundering and terrorism financing.
Jurisdiction risk can also refer to when laws unexpectedly change in a jurisdiction an investor has exposure to.

BREAKING DOWN 'Jurisdiction Risk'

Jurisdiction risk is generally believed to be higher in countries that have either been designated as non-cooperative by the Financial Action Task Force, or have been identified by the U.S. Treasury as requiring special measures due to concerns about money laundering or corruption. Because of the punitive fines and penalties that can be levied against a financial institution that is involved (even inadvertently) in money laundering or financing terrorism, most organizations have specific processes to assess and mitigate jurisdiction risk.

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