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Korea’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) System Faces Criticism

SEOUL, SOUTH KOREA - A recent report by international financial regulators has identified several shortcomings in South Korea’s AML/CFT system. The report assesses Korea’s implementation of the Financial Action Task Force (FATF) Recommendations and highlights areas where improvement is needed to effectively prevent money laundering and terrorist financing.

Lack of Enforceable Guidelines

The report criticizes the Korean authorities for relying on non-enforceable guidelines rather than laws or regulations to implement AML/CFT measures. This lack of clear language and proportionate sanctions in the guidelines makes it difficult to ensure compliance with international standards.

Exemptions from Customer Due Diligence Obligations

Some institutions have been granted exemptions from customer due diligence (CDD) obligations, which could potentially create vulnerabilities for money laundering and terrorist financing.
There is limited information on the exempted institutions and transactions, and it is recommended that a robust assessment be conducted to ensure that these exemptions are justified.

Weaknesses in Customer Identification and Verification

Korea’s CDD process lacks secondary verification of customer identification information and inadequate measures for monitoring business relationships and ongoing due diligence.
There is no provision for enhanced CDD on high-risk customers or transactions.

The report criticizes the limited sharing of customer identification information between financial institutions, which can hinder effective AML/CFT efforts.
It recommends removing restrictions on information sharing to facilitate cooperation among financial institutions.

Insufficient Transaction Record Keeping

There is no explicit requirement for financial institutions to keep transaction records sufficient to reconstruct individual transactions or provide evidence in the event of criminal activity.

Lack of Attention to Complex Transactions

The report highlights the lack of requirements for financial institutions to pay special attention to complex, unusual large transactions or patterns of transactions with no apparent economic or lawful purpose.

Well-Implemented Suspicious Transaction Reporting System

Korea’s well-implemented suspicious transaction reporting (STR) system has a low threshold for reporting suspicious transactions.
While the STR obligation is effective in detecting and preventing money laundering, there are still some deficiencies in the list of predicate offenses and terrorist financing offenses.

Insufficient Internal Controls

Financial sector organizations do not have sufficiently specific internal procedures, policies, and controls in place to prevent AML/CFT violations.
There is no requirement for employee screening or training on AML/CFT measures.

Call for Improvement

The report calls on the Korean authorities to address these shortcomings and implement effective AML/CFT measures to prevent money laundering and terrorist financing. The international community is watching Korea’s progress in this area, and any failure to comply with international standards could have serious consequences for the country’s financial stability and reputation.