South Korea’s Financial Institutions Face Growing Threats from North Korea

In the wake of increasing tensions between North and South Korea, financial institutions in South Korea are being forced to bolster their anti-money laundering (AML) and Office of Foreign Assets Control (OFAC) compliance programs to prevent illicit activities linked to North Korea.

Recent High-Profile Cases Highlight Innovative Tactics

• In 2016, a Chinese company was charged with conspiring to evade US economic sanctions against North Korea.
• In 2017, a civil complaint was filed to forfeit approximately $1.9 million from a China-based company alleged to be a front for North Korean entities.

Regulatory Response: Strengthening AML and OFAC Compliance Framework

In response to these threats, the South Korean government has taken steps to strengthen its AML and OFAC compliance framework. In June 2017, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking to prohibit the opening or maintenance of correspondent accounts in the US for certain Chinese banks.

Risk Mitigation Strategies

To mitigate these risks, South Korean financial institutions should prioritize the following:

Enhanced Customer Due Diligence

• Conduct thorough background checks on high-risk customers
• Regularly review their transactions

Improved Transaction Monitoring

• Implement robust transaction monitoring systems to detect suspicious activity and flag potential threats

Regular Training and Updates

• Provide ongoing training for AML and OFAC personnel to stay informed about emerging trends and best practices

Integration of KYC and AML Programs

• Ensure that Know Your Customer (KYC) programs are well-integrated into overall AML initiatives

By taking proactive steps to address these threats, South Korean financial institutions can help prevent illicit activities linked to North Korea and maintain a strong reputation for integrity and compliance.