Financial Crime World

Korea’s Anti-Money Laundering (AML)/Counter-Terrorist Financing (CTF) System: Strengths, Weaknesses, and Recommendations for Improvement

Overview of Korea’s AML/CTF System

The Financial Action Task Force (FATF) has been evaluating the effectiveness of Korea’s Anti-Money Laundering (AML)/Counter-Terrorist Financing (CTF) system, highlighting both strengths and weaknesses. This article summarizes the key points from the FATF evaluation.

Strengths:

  • There is no financial institution secrecy law that inhibits implementation of FATF Recommendations.
  • Effective record keeping obligations exist in several laws and are being implemented effectively.

Suspicious Transaction Reporting (STR) System

  • Korea has a well-implemented STR system, enabling the detection and reporting of suspicious transactions.

Weaknesses:

Customer Due Diligence (CDD)

  • There’s no provision requiring CDD for transactions below the designated threshold that appear to be linked.
  • Measures concerning existing customers are weak.
  • Requirements with respect to legal persons are weak.

Monitoring Business Relationships

  • There is a lack of provisions requiring enhanced monitoring of business relationships and ongoing due diligence.

Politically Exposed Persons (PEPs) and Correspondent Banking

  • Korea has little in the way of measures concerning PEPs and correspondent banking.

Third-Party Reliance

  • While reliance on third parties for some elements of CDD is possible, there are no provisions dealing with this.

Sharing Customer Information

  • There’s a limitation on the sharing of customer identification information between financial institutions which should be removed.

Transaction Records

  • There’s no explicit requirement that institutions keep transaction records sufficient to permit reconstruction of individual transactions.

Wire Transfer Obligations

  • While there are some obligations in place, they could be more comprehensive.

Recommendations for Improvement:

  1. Enhance CDD requirements, particularly concerning legal persons and business relationships.
  2. Strengthen monitoring of high-risk customers, business relationships, and transactions.
  3. Introduce provisions requiring enhanced due diligence on PEPs and correspondent banking.
  4. Clarify the interplay between FTRA and other laws regulating the financial sector regarding internal controls.
  5. Improve AML/CFT training for employees, including screening requirements.

Conclusion

Korea’s AML/CTF system has a strong foundation but faces areas where improvements are necessary to fully comply with FATF Recommendations and to effectively prevent money laundering and terrorist financing activities. Addressing these weaknesses will help strengthen the system and enhance its effectiveness in preventing illicit financial activities.