Financial Crime World

South Korea Takes Steps to Enhance Compliance with Anti-Money Laundering Laws

Overview

The Republic of Korea has been actively working to strengthen its anti-money laundering (AML) regulations in recent years, with a particular focus on virtual assets. In this article, we will examine the key developments in South Korea’s AML regime and what they mean for businesses operating in the country.

Virtual Asset Regulation

In 2022, the Korean government established the Financial Information Unit (KoFIU) as the primary regulator for virtual assets. This move marked a significant shift towards regulating the sector, which had previously been largely unregulated. The key requirements for virtual asset service providers (VASPs) in South Korea are:

  • Suspicious Transaction Reports (STRs): VASPs must submit STRs to KoFIU.
  • Currency Transaction Reports (CTRs): VASPs must submit CTRs to KoFIU.
  • Know-Your-Customer (KYC) Procedures: VASPs must establish KYC procedures to verify customers’ identities.
  • National Bank Accounts: VASPs must secure national bank accounts to verify customers’ real names.

Recent Enforcement Actions

In March 2023, KoFIU conducted on-site inspections of the top five VASPs in South Korea to assess their compliance with AML regulations. The results were disappointing, with all five companies found to be in violation of AML laws and regulations. Penalties included:

  • Institutional Warnings: All five companies received institutional warnings.
  • Reprimands for Executives and Employees: Reprimands were issued to executives and employees of the five companies.
  • Civil Penalties: Civil penalties were imposed on the five companies.

New Laws and Regulations

On July 18, 2023, the Korean National Assembly passed the Act on the Protection of Virtual Asset Users, which will come into effect on July 19, 2024. The key provisions of this law are:

  • Separation of Customers’ Assets: VASPs must separate customers’ assets from their own assets.
  • Prohibition of Unfair Trade Practices: The law prohibits unfair trade practices related to virtual assets.
  • Supervision by the Financial Services Commission (FSC): The FSC is granted the authority to supervise virtual asset businesses.

Strengthening AML Responsibilities

In July 2023, KoFIU announced plans to strengthen and clarify the AML-related responsibilities of individuals within financial companies. This includes updating regulations concerning the responsibilities of CEOs, board members, and compliance officers. The plan is expected to come into effect in the first half of 2024.

Conclusion

The Republic of Korea’s efforts to enhance its AML regime are a positive step towards preventing money laundering and ensuring the integrity of the financial system. Businesses operating in South Korea must be aware of these changes and ensure that they are compliant with all relevant laws and regulations. Failure to do so may result in severe penalties, including fines and reputational damage.