Financial Crime World

Korea’s Anti-Money Laundering Efforts Show Promise, but Room for Improvement

Effective Measures, but Areas for Strengthening

South Korea’s efforts to combat money laundering and terrorist financing (ML/TF) have been deemed effective by financial experts. While several institutions and transactions have been identified as low-risk, there are still areas where the country can strengthen its anti-money laundering (AML) and combating the financing of terrorism (CFT) framework.

Strengths in Customer Identification and Verification

  • The Real Name Financial Transactions Act requires financial institutions to conduct transactions in customers’ real names, with limited exceptions.
  • Korea has a strong legal framework that ensures no financial institution secrecy laws inhibit implementation of international standards.

Areas for Improvement

  • Customer Due Diligence: Reliability of customer due diligence (CDD) processes could be strengthened by requiring secondary verification of customer identification information.
  • Monitoring Business Relationships: Measures concerning monitoring business relationships and ongoing due diligence for existing customers are weak.
  • Enhanced CDD on High-Risk Customers: There is no provision in law or regulation requiring enhanced CDD on high-risk customers, businesses, or transactions.

Weaknesses in Measures Concerning Politically Exposed Persons and Correspondent Banking

  • Korea lacks provisions requiring enhanced CDD on high-risk customers, businesses, or transactions.
  • There are no measures concerning politically exposed persons and correspondent banking.

Positive Developments

  • Suspicious Transaction Reporting (STR) System: Korea has a well-implemented STR system with a lower reporting threshold in place since 2004.
  • Protection for Whistleblowers: The country also has provisions in place to protect those who report suspicions in good faith from liability and prohibits tipping off of third parties when an STR is being made or has been made.

Internal Controls

  • Key pieces of legislation require financial sector organizations to establish and maintain policies and procedures, but these are not sufficiently specific.
  • Korea lacks screening requirements for employees of financial institutions and no requirement that institutions pay particular attention to applying AML/CFT measures in overseas branches and subsidiaries located in jurisdictions with inadequate standards.

Conclusion

While Korea’s AML/CFT framework shows promise, there is still much work to be done to strengthen its defenses against ML/TF. The country must continue to prioritize improvements in CDD, business relationship monitoring, and internal controls to ensure the effectiveness of its anti-money laundering efforts.