Detecting Financial Crime in Democratic People’s Republic of Korea: Key Takeaways from Recent FATF Developments

Introduction

The global community is increasingly concerned about financial crime, and the Financial Action Task Force (FATF) has updated its list of jurisdictions with strategic anti-money laundering/combating the financing of terrorism/countering the financing of proliferation of weapons of mass destruction (AML/CFT/CPF) deficiencies. The Democratic People’s Republic of Korea (DPRK), also known as North Korea, remains on the FATF’s list of High-Risk Jurisdictions Subject to a Call for Action.

Enhanced Due Diligence Required

Financial institutions operating in countries that are members of the intergovernmental group or organization of which the United States is a member and have designated the DPRK as noncooperative with respect to international anti-money laundering principles or procedures must apply enhanced due diligence when maintaining correspondent accounts for foreign banks operating under a banking license issued by the country.

• This includes:
  • Conducting thorough background checks on foreign banks and their officials
  • Verifying the legitimacy of transactions and customer identities
  • Monitoring transactions for suspicious activity

Counter-Measures Against DPRK

Financial institutions are prohibited from opening or maintaining any correspondent accounts, directly or indirectly, for North Korean financial institutions. Existing U.S. sanctions and FinCEN regulations already prohibit such correspondent account relationships.

• This includes:
  • Prohibiting the opening of new correspondent accounts
  • Closing existing correspondent accounts
  • Reporting suspicious activity related to North Korean financial institutions

International Cooperation and Sanctions

The United Nations continues to adopt several resolutions implementing economic and financial sanctions, which are especially relevant to financial institutions operating in countries under sanction. Financial institutions should be familiar with the requirements and prohibitions contained in relevant UNSCRs.

• This includes:
  • Verifying compliance with UNSCRs
  • Reporting suspicious activity related to sanctioned entities
  • Implementing sanctions-related regulations

FinCEN Guidance

Financial institutions should consult existing FinCEN and Office of Foreign Assets Control (OFAC) guidance on engaging in financial transactions with Burma, Iran, and North Korea. Additionally, FinCEN advises U.S. financial institutions to apply enhanced due diligence when maintaining correspondent accounts for foreign banks operating under a banking license issued by a country designated by an intergovernmental group or organization of which the United States is a member.

• This includes:
  • Conducting thorough background checks on foreign banks and their officials
  • Verifying the legitimacy of transactions and customer identities
  • Monitoring transactions for suspicious activity

Suspicious Activity Reporting

Financial institutions that know, suspect, or have reason to suspect that a transaction involves funds derived from illegal activity or that a customer has otherwise engaged in activities indicative of money laundering, terrorist financing, or other violation of federal law or regulation must file a Suspicious Activity Report.

• This includes:
  • Filing SARs promptly
  • Conducting thorough investigations
  • Reporting suspicious activity to the relevant authorities