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FATF Recommendations: Korea’s Efforts to Combat Money Laundering and Terrorist Financing

In its latest evaluation, the Financial Action Task Force (FATF) has acknowledged Korea’s efforts to implement anti-money laundering (AML) and counter-terrorist financing (CFT) measures. However, the report highlights several areas that require improvement.

Enforcement Guidelines

Korea’s AML Enforcement Guidelines, issued in September 2008, are considered an “other enforceable means” by Korean authorities and financial institutions. However, FATF recommends that these guidelines be either transplanted into laws or regulations, or provisions be enacted to make them enforceable and sanctionable.

Exemptions

Korea’s Financial Transaction Reporting Act (FTRA) and its enforcement decree provide exemptions for certain entities from AML/CFT obligations. While the report acknowledges that exempted institutions are likely low-risk, FATF recommends conducting a robust assessment underpinning these exemptions.

Customer Identification and Verification

Korea’s CDD process is considered a strength, but FATF suggests strengthening it by requiring secondary verification of customer identification information. Additionally, there is no provision for CDD in cases where linked transactions appear below the designated threshold.

Legal Framework

Korea has a strong legal framework that ensures financial institution secrecy laws do not hinder implementation of FATF Recommendations. However, record-keeping obligations should be expanded to include transaction records sufficient for reconstructing individual transactions and providing evidence for criminal prosecution.

Risk Management

Financial institutions in Korea are required to establish their own risk management systems for AML/CFT, but there is no requirement for paying special attention to complex or unusual transactions.

Suspicious Transaction Reporting (STR) System

Korea’s STR system is well-implemented, but the low reporting threshold of KRW 20 million (approximately USD 17,000) undermines its effectiveness. Additionally, deficiencies in the list of predicate offenses and TF offense impact the scope of suspicious transaction reporting requirements.

Internal Controls and Training

Key pieces of legislation require financial sector organizations to establish internal procedures, policies, and controls, but these are not sufficiently specific. There is no requirement for AML/CFT training for employees or screening requirements for foreign branches.

Conclusion

The report concludes that while Korea has made progress in implementing AML/CFT measures, there are still several areas that require improvement to effectively combat money laundering and terrorist financing.