Financial Institutions Must Conduct Customer Due Diligence, Report Suspicious Transactions

Introduction

In an effort to combat money laundering and terrorist financing, the Korean government has introduced new regulations requiring financial institutions to conduct customer due diligence (CDD) and report suspicious transactions. This article will outline the requirements for CDD and suspicious transaction reporting.

Customer Due Diligence (CDD)

Financial institutions must identify natural persons who own or control customers when a new account is opened or financial transactions exceed a certain threshold. This applies regardless of suspicion of money laundering or terrorist financing.

• Financial institutions must obtain information on the purpose and intended nature of business relationships with customers.
• They are also required to conduct ongoing CDD for customers as long as the business relationship continues.
• If a customer refuses to provide necessary information for identification purposes, financial institutions will not open new accounts or perform new transactions and may terminate existing business relationships.

Risk Management Procedures

Financial institutions must establish risk management procedures for CDD and fulfill their obligations without delay. They are required to conduct CDD at an appropriate time for customers with whom business relationships were already established before the implementation of the Act.

Suspicious Transaction Reports (STRs)

The Financial Intelligence Unit (KoFIU) has introduced a new system for reporting suspicious transactions. Financial institutions and casinos must report any transaction that gives them reasonable grounds to suspect is related to money laundering or terrorist financing.

• An STR must include information about the customer, description of the transaction, and list of data kept in relation to the reported transaction.
• The KoFIU will conduct comprehensive analysis of all received STRs and pass on the information to appropriate law enforcement agencies for further investigation.

Currency Transaction Reports (CTRs)

In addition, financial institutions and casinos are required to report cash transactions above a designated threshold. CTRs are used as supplementary data for individual analysis of STRs and assist analysts in understanding the flow of suspicious funds.

Conclusion

The new regulations aim to enhance the effectiveness of information analysis and prevent money laundering and terrorist financing activities. Financial institutions must comply with these regulations to ensure they are doing their part in combating financial crime.