Financial Crime World

Korea’s Anti-Money Laundering and Combating the Financing of Terrorism Efforts Under Scrutiny

A recent report has shed light on several areas where Korea’s anti-money laundering (AML) and combating the financing of terrorism (CFT) efforts can be improved. While customer identification and verification are considered strengths in Korea’s AML/CFT system, there are concerns that the reliability of the customer due diligence (CDD) process could be further strengthened.

Customer Due Diligence Process

  • The report highlights a weakness in the CDD process for legal persons
  • There is no provision requiring enhanced CDD on high-risk customers, business relationships, or transactions
  • No measures are in place concerning politically exposed persons and correspondent banking
  • Korea’s strong legal framework ensures that financial institution secrecy laws do not inhibit the implementation of AML/CFT recommendations
  • Record-keeping obligations exist in several laws and are being implemented effectively

Limitations and Areas for Improvement

  • There is a limitation on sharing customer identification information between financial institutions, which should be removed
  • No explicit requirement for institutions to keep transaction records sufficient to permit reconstruction of individual transactions or provide information to authorities on a timely basis
  • No explicit requirement for financial institutions to pay special attention to complex, unusual large transactions or unusual patterns of transactions with no apparent economic or lawful purpose
  • Financial institutions are not required to pay special attention to business relationships and transactions with persons from countries that do not or insufficiently apply the FATF Recommendations

Positive Aspects

  • Korea has a well-implemented suspicious transaction reporting (STR) system, although the STR reporting threshold is considered too low
  • Provisions are in place to protect those who have reported suspicions in good faith from liability and prohibit tipping off of third parties when an STR is being made or has been made

Recommendations for Improvement

  • More specific internal control requirements
  • Better implementation of employee training
  • Screening requirements for employees
  • Institutions should pay particular attention to AML/CFT measures in overseas branches and subsidiaries located in jurisdictions that do not or insufficiently apply the FATF Recommendations