Financial Crime World

South Korea’s Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) Framework: Assessment and Recommendations

Introduction

The Financial Action Task Force (FATF), an inter-governmental organization that sets international standards for AML/CFT, has conducted a self-assessment of South Korea’s anti-money laundering and counter-terrorist financing measures. This report provides an overview of the assessment, highlighting both strengths and areas for improvement in Korea’s AML/CFT framework.

Strengths in Korea’s AML/CFT Framework

  • High awareness of proliferation financing issues: Korea has a strong understanding of the risks associated with proliferation financing and has designated numerous individuals and entities related to the Democratic People’s Republic of Korea (DPRK) and Iran.
  • Robust mechanisms for tracing and confiscating assets: Korea has effective mechanisms in place to trace and confiscate assets that could be used in the context of terrorism financing (TF).
  • Comprehensive AML/CFT measures in the banking, securities, and insurance sectors: These sectors are subject to comprehensive AML/CFT measures, including customer due diligence (CDD) and suspicious transaction reporting (STR).

Areas for Improvement

Limited scope of AML/CFT framework

  • The current framework only applies to certain designated non-financial businesses and professions (DNFBPs), such as real estate agents and lawyers.

Insufficient coverage of domestic PEPs

  • Korea does not have specific requirements for identifying, verifying, and reporting on domestic politically exposed persons (PEPs).
  • Sanctions for legal persons that fail to comply with their reporting obligations are limited.

Inadequate information on the existence and characteristics of civil trusts and foreign trusts operating in Korea

  • Limited information is available on these types of trusts.

Recommendations

To address these weaknesses, the report recommends several priority actions:

  1. Extend the AML/CFT framework to apply to all DNFBPs: Designate a supervisor for these sectors.
  2. Expand the scope of AML/CFT obligations to include domestic PEPs and PEPs of international organizations.
  3. Amend the law to expand the range of tax crimes that are ML predicate offenses: Ensure Korea is able to prosecute money laundering based on tax crime.
  4. Continue exploring measures to promote the actual recovery of assets ordered for confiscation.

Conclusion

The report provides a comprehensive assessment of South Korea’s AML/CFT framework and highlights areas for improvement to strengthen its effectiveness in combating money laundering and terrorist financing. By addressing these weaknesses, Korea can enhance its ability to prevent and detect financial crimes, protect the integrity of its financial system, and promote international cooperation in this area.