Financial Crime World

Korean Financial System Lacks Clarity on Anti-Money Laundering and Combating the Financing of Terrorism

Criticism from International Watchdogs

Seoul, South Korea - A recent report by international financial watchdogs has raised concerns over the Korean government’s efforts to combat money laundering (ML) and combating the financing of terrorism (CFT). The report highlights several weaknesses in the country’s anti-money laundering (AML) system, including ambiguous language, lack of clear links between guidelines and sanctions, and insufficient training for employees.

Key Findings

  • Ambiguous AML Enforcement Guidelines issued by KoFIU have led to confusion among financial institutions about their obligations.
  • Lack of secondary verification of customer identification information and insufficient provisions for monitoring business relationships and ongoing due diligence.
  • Weak CDD requirements for legal persons, with no provision for enhanced CDD on high-risk customers or transactions.
  • STR system has a low reporting threshold, particularly for suspicions of terrorist financing.
  • CTR system is limited in its scope and effectiveness.

Recommendations

To address these weaknesses, the Korean government must take immediate action to:

  • Clarify the ambiguity surrounding the AML Enforcement Guidelines
  • Strengthen customer identification and verification procedures
  • Improve STR and CTR reporting systems
  • Establish specific requirements for financial institutions to establish and maintain internal procedures, policies, and controls
  • Implement screening requirements for employees of financial institutions
  • Provide more effective and targeted AML/CFT training

Conclusion

While Korea has made progress in implementing its AML/CFT measures, there are still significant weaknesses that need to be addressed. The government must take immediate action to address these issues to ensure the effectiveness of its financial system in combating money laundering and terrorist financing.

Source: FATF Report on Anti-Money Laundering and Combating the Financing of Terrorism in Korea