Banking Industry Plays Crucial Role in Preventing Financial Crime in North Korea

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The international community has sounded the alarm on the proliferation of financing risk emanating from North Korea. The Financial Action Task Force (FATF) emphasizes the importance of robust implementation of anti-money laundering and combating the financing of terrorism (AML/CFT) standards to disrupt the country’s illicit financial activities.

United Nations Security Council Resolutions

In a statement, the FATF highlighted recent United Nations Security Council (UNSC) Resolutions that reinforce strict financial restrictions on North Korea. The FATF is reiterating its international standards related to proliferation financing and calling upon its members and all jurisdictions to effectively implement relevant recommendations and UNSC Resolutions.

Implementation of Recommendations

The implementation of FATF recommendations, particularly targeted financial sanctions against individuals and entities without delay, is crucial in addressing the threat posed by North Korea’s illicit activities. Countries are urged to propose new listings of individuals and entities meeting designation criteria. The FATF updated Recommendation 7 in June to reflect changing risks and recent UNSC Resolutions, including extending targeted financial sanctions to North Korean government entities associated with nuclear or ballistic missile programs.

Combating Proliferation Financing

The effective system for combating proliferation financing will ensure that persons and entities designated by UNSC Resolutions on WMD proliferation are identified, deprived of resources, and prevented from raising, moving, and using funds or other assets for the financing of proliferation. North Korea frequently uses front companies, shell companies, joint ventures, and complex ownership structures to violate sanctions.

Guidance and Feedback

The FATF emphasizes that an effective regime requires mechanisms to prevent the evasion of sanctions as well as ensuring that relevant competent authorities provide financial institutions and designated non-financial businesses and professions (DNFBPs) with guidance and specific feedback. The UNSC has passed several Resolutions concerning North Korea, including prohibiting the opening and operation of new branches, subsidiaries, and representative offices of North Korean banks in their territories.

Action Required

The FATF calls upon its members and all jurisdictions to effectively implement targeted financial sanctions according to FATF Recommendation 7 and to apply effective countermeasures to protect their financial systems from money laundering (ML), terrorist financing (TF), and proliferation financing (PF) threats emanating from North Korea. The implementation of these standards will ensure that North Korea’s illicit financial activities are disrupted, and its ability to raise, move, and use funds for the financing of proliferation is prevented.

Recommendations

• Countries should robustly implement targeted financial sanctions against individuals and entities without delay.
• Countries need to cooperate and coordinate between relevant authorities on the development and implementation of policies and activities to combat PF and share relevant information (Recommendation 2).
• An effective system for combating proliferation financing will ensure that persons and entities designated by UNSC Resolutions on WMD proliferation are identified, deprived of resources, and prevented from raising, moving, and using funds or other assets for the financing of proliferation.
• States should prohibit the opening and operation of new branches, subsidiaries, and representative offices of North Korean banks in their territories.
• Countries should apply effective countermeasures to protect their financial systems from ML/TF/PF threats emanating from North Korea.

Action

1. Implement targeted financial sanctions against individuals and entities without delay.
2. Develop and implement policies and activities to combat PF and share relevant information (Recommendation 2).
3. Establish mechanisms to prevent the evasion of sanctions as well as ensuring that relevant competent authorities provide financial institutions and DNFBPs with guidance and specific feedback.
4. Prohibit the opening and operation of new branches, subsidiaries, and representative offices of North Korean banks in their territories.
5. Apply effective countermeasures to protect financial systems from ML/TF/PF threats emanating from North Korea.