Financial Crime World

Korea’s Anti-Money Laundering and Combating the Financing of Terrorism Efforts Falling Short

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A recent assessment by international authorities has raised concerns over Korea’s implementation of anti-money laundering (AML) and combating the financing of terrorism (CFT) measures. The country’s efforts, while showing some strengths, are hindered by several weaknesses and ambiguities in its legal framework.

Key Weaknesses

AML Enforcement Guidelines

  • Do not constitute “other enforceable means” for the purposes of the Financial Action Task Force (FATF) methodology.
  • Are unclear and lack a clear link between non-compliance and sanctions.

Exemptions from AML/CFT Obligations

  • Granted without conducting a robust assessment to determine their risk level.
  • Lack clarity on the criteria used to assess risk.

Customer Identification and Verification Process

  • Could be strengthened by requiring secondary verification of customer information.
  • May not adequately identify high-risk customers, business relationships, and transactions.

Additional Concerns

Enhanced Due Diligence

  • Lack of provisions for enhanced due diligence on high-risk customers, business relationships, and transactions.
  • No measures in place regarding politically exposed persons and correspondent banking.

Record-Keeping Obligations

  • Exist in several laws, but there are limitations on sharing customer identification information between institutions.

Positive Aspects

  • Ensures that financial institution secrecy laws do not hinder the implementation of FATF Recommendations.
  • Provides a solid foundation for AML/CFT measures.

Suspicious Transaction Reporting (STR) System

  • Considered well-implemented, with a low reporting threshold of KRW 20 million (approximately USD 17,000).
  • Allows for effective monitoring of suspicious transactions.

Recommendations

Strengthen the AML Enforcement Guidelines

  1. Make them more specific and enforceable.
  2. Conduct a robust assessment of exemptions to determine their risk level.

Enhance Due Diligence

  1. Implement enhanced due diligence on high-risk customers, business relationships, and transactions.
  2. Develop measures concerning politically exposed persons and correspondent banking.

Improve Transparency

  1. Increase transparency in record-keeping obligations.
  2. Lower the suspicious transaction reporting threshold for terrorism financing reports.

Conclusion

Korea’s AML/CFT efforts require improvement to meet international standards. The country must address the weaknesses identified in this assessment to ensure a robust and effective system against money laundering and terrorist financing.