Financial Crime World

Korea’s AML/CFT System: Strengths and Weaknesses

A recent assessment of Korea’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) system has revealed both strengths and weaknesses. This article will delve into the details, highlighting areas where Korea excels and those that require improvement.

Strengths

  • Customer Identification and Verification: A strength in Korea’s AML/CFT system is its customer identification and verification process.
  • Legal Framework: Korea’s legal framework is strong, ensuring that financial institution secrecy laws do not inhibit the implementation of the Financial Action Task Force (FATF) Recommendations.

Weaknesses

Customer Due Diligence (CDD)

  • No provision requiring CDD in cases where several transactions below the designated threshold appear to be linked.
  • Measures concerning monitoring business relationships, ongoing due diligence, and existing customers are lacking.

Record-Keeping Obligations

  • Korea’s record-keeping obligations exist in several laws but are not being implemented effectively.

Information Sharing

  • Limitations in sharing customer identification information between financial institutions.
  • Lack of explicit requirements for institutions to keep transaction records sufficient for reconstruction or provide information to authorities on a timely basis.

Suspicious Transaction Reporting

  • Well-implemented system, but the reporting threshold is low, which may undermine the effectiveness of the obligation.
  • Deficiencies in the list of predicate offenses and terrorist financing (TF) offense, impacting the scope of the suspicious transaction reporting requirement.

Recommendations for Improvement

To strengthen Korea’s AML/CFT system, it is essential to:

  • Enhance Customer Due Diligence (CDD)
  • Monitor business relationships
  • Introduce measures concerning high-risk customers, business relationships, and transactions
  • Provide AML/CFT training for employees
  • Establish screening requirements for financial institution employees

By addressing these weaknesses and improving its AML/CFT system, Korea can better prevent money laundering and the financing of terrorism, ultimately protecting its financial stability and reputation.