The scenario presents multiple high-risk indicators: an offshore jurisdiction, a passive business purpose (holding shares), and a registered address shared by many other entities. This last point is a classic red flag for a shell company, which lacks physical presence and legitimate business operations. The combination of these factors significantly elevates the client's risk profile. According to the risk-based approach, a higher-risk client requires Enhanced Due Diligence (EDD) to adequately understand the customer's nature, beneficial ownership, and source of funds, thereby mitigating potential money laundering and terrorist financing risks.

A. Ask for the clientэs utility bill confirming the registered address.

A utility bill is ineffective for verifying a shared, non-operational address and fails to address the core risk of the entity being a shell company.

C. Follow the regular KYC requirements as per legal form of the client.

Applying standard due diligence is insufficient given the multiple high-risk indicators. A risk-based approach mandates escalating measures for such clients.

D. Follow the KYC requirements for the holding companies.

This is too generic. The specific red flags (offshore, shared address) necessitate more than standard procedures for holding companies; they are specific triggers for EDD.

1. Financial Action Task Force (FATF). (2020). FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation. FATF

Paris

France.

Interpretive Note to Recommendation 10 (Customer Due Diligence)

Section C: States that examples of higher-risk situations that require Enhanced Due Diligence (EDD) include customer risk factors such as "the ownership structure of the company appears unusual or excessively complex given the nature of the company’s business." The use of a shared address in an offshore jurisdiction for a holding company fits this description.

2. Financial Action Task Force (FATF). (2018). Concealment of Beneficial Ownership. FATF

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France.

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Section "Misuse of professional intermediaries": This report identifies the use of professional intermediaries to provide registered addresses

which are used by numerous other companies

as a key indicator of potential misuse of legal persons for illicit purposes

a characteristic often associated with shell companies.

3. The Wolfsberg Group. (2023). Wolfsberg Correspondent Banking Due Diligence Questionnaire (CBDDQ) V1.4.

Question 10.2: Asks whether the institution's AML policies include a list of high-risk indicators for EDD. The guidance notes often list shell banks/companies and entities from high-risk jurisdictions as requiring EDD

reinforcing the principle that such characteristics trigger enhanced scrutiny.