Jurisdiction risk is a threat that can arise when a business or investor enters into new markets and foreign jurisdictions. Put simply, such risk is the possibility that a change in the laws or regulations of a foreign country can lead to unexpected problems or costs for the business or investor involved.

Jurisdiction risk has been a growing concern for businesses and investors as the global economy continues to become increasingly interconnected. For instance, a business looking to expand into new markets may find that a foreign country’s existing laws or regulations could impose unexpected requirements or liabilities. Similarly, an investor interested in diversifying into foreign markets may be exposed to unforeseen changes in the laws. This can sometimes lead to significant losses.

The U.S. government has taken steps to reduce the risk of jurisdiction risk, recommending that financial institutions refer to updates from the Financial Action Task Force (FATF) to identify potentially risky jurisdictions. The FATF is an intergovernmental body dedicated to fighting money laundering and terrorist financing, and their updates can help inform such institutions of jurisdictions that may have weak measures to combat such activities.

In addition, businesses and investors should also take into account other factors, such as economic and political stability, as well as a foreign jurisdiction’s degree of transparency and accountability. For instance, some countries may feature laws that are favorable to foreign investors but could be subjected to frequent and unexpected changes. Such countries can represent greater jurisdiction risk, even if their laws are attractive to investors.

In short, it is important for businesses and investors to be aware of jurisdiction risk and be mindful of the potential risks of operating in foreign markets. By reviewing updates from the FATF and taking into account factors such as economic and political stability and accountability, businesses and investors can be better prepared to navigate potential risks associated with entering new jurisdictions.