DPRK Threats: Mitigating Money Laundering and Sanctions Evasion in Korea

Financial Institutions in Korea, Democratic People’s Republic of (DPRK) Face Increasing Threats from Money Laundering and Sanctions Evasion

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The Democratic People’s Republic of Korea (DPRK), also known as North Korea, has been at the forefront of a global threat environment that poses significant challenges to financial institutions in Korea. The country’s consistent use of China as a conduit for accessing the global financial system has raised serious concerns among regulators and law enforcement agencies.

Recent Examples of Money Laundering and Sanctions Evasion

In 2016, Chinese company Dandong Hongxiang Industrial Development Co. Ltd. (DHID) was criminally charged with conspiring to evade US economic sanctions against the DPRK and violating the Weapons of Mass Destruction Proliferators Sanctions Regulations (WMDPSR). The company established front companies globally in high-risk offshore jurisdictions and conducted financial transactions through the US financial system, using a DPRK bank connected to weapons of mass destruction proliferators.

In 2017, the US filed a civil complaint to forfeit approximately $1.9 million from China-based company Mingzheng International Trading Limited (MITL), which was alleged to be a front company created for the purpose of laundering US funds on behalf of sanctioned DPRK entities.

US Government Response

The US Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), has issued a notice of proposed rulemaking pursuant to Section 311 of the USA PATRIOT Act to prohibit the opening or maintenance of a correspondent account in the US for, or on behalf of, China’s Bank of Dandong. The bank acts as a financial conduit between the DPRK and the US and global financial systems.

AML/OFAC Compliance Risk Mitigation

Financial institutions in Korea must continually evaluate and strengthen their AML (Anti-Money Laundering) and OFAC (Office of Foreign Assets Control) programs to mitigate the risks associated with existing global events and threats, such as the DPRK threat. This includes:

Revisiting Customer Risk Rating Methodology and Country Risk Rating Methodology to gauge if revisions are necessary.
Providing detailed training to AML and OFAC personnel on sanctions screening, especially in light of current regulatory landscape.
Integrating KYC (Know Your Customer) program into AML/OFAC program with clearly defined policies and procedures.
Developing a methodically developed transaction monitoring strategy that targets high-risk transaction types, such as wire transfers.

Conclusion

The global threat environment is evolving rapidly, and financial institutions in Korea must adapt their compliance and risk management initiatives to stay ahead of emerging threats. By following best practices for AML/OFAC compliance and regularly reviewing and revising their programs, these institutions can effectively mitigate the risks associated with money laundering and sanctions evasion by DPRK entities.

Our Financial Crimes Advisory practice at AML RightSource is well-informed of the global threat landscape and can help financial institutions develop a unique and forward-thinking program tailored to their risk profiles.