Korea’s Financial Institutions Face Mounting Pressure to Comply with Anti-Money Laundering Regulations
Seoul, South Korea - The Democratic People’s Republic of Korea (DPRK) has been accused of using sophisticated tactics to evade US economic sanctions through financial institutions in the United States.
Case Studies Show Widespread Abuse
Recent high-profile cases have highlighted the need for compliance procedures to be in place to prevent such exploitation. In September 2016, a China-based company and four Chinese nationals were charged with conspiring to evade US economic sanctions against the DPRK. The defendants established front companies globally and used them to conduct financial transactions through the US financial system when completing sales financed by a DPRK bank connected to weapons of mass destruction proliferators.
Most Recent Case
In June 2017, the US filed a civil complaint to forfeit approximately $1.9 million from China-based company Mingzheng International Trading Limited, alleged to be a front company created for the purpose of laundering US funds on behalf of sanctioned DPRK entities.
Secondary Sanctions: A Warning Shot Across the Bow
The current administration has taken action against China’s Bank of Dandong, a financial institution found to be a primary money laundering concern. The Treasury issued a notice of proposed rulemaking to prohibit the opening or maintenance of a correspondent account in the US for, or on behalf of, the bank.
Financial Institutions Must Act
To mitigate the risk of DPRK exploitation, financial institutions must continually evaluate and strengthen their anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) compliance programs. This includes:
- Revisiting Customer Risk Rating Methodology and Country Risk Rating Methodology: Ensure adequate safeguards are in place to prevent high-risk transactions.
- Providing detailed training to AML and OFAC personnel: Educate staff on current events, risk mitigation practices, and regulatory requirements.
- Integrating Know Your Customer (KYC) programs into AML/OFAC programs: Clearly define policies and procedures for customer due diligence and monitoring.
- Developing a methodically developed transaction monitoring strategy: Regularly review transactions to identify high-risk activities and implement necessary controls.
By taking proactive steps to address the DPRK threat, financial institutions can mitigate their risk and ensure compliance with regulatory requirements.