Money laundering

Money laundering (자금세탁) is strictly regulated in Korea by the global standards. To this end, the Korea Financial Intelligence Unit (KoFIU) was established in November 2001. KoFIU has been the primary executive agency responsible for implementing an effective Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regime in Korea.

Money laundering is defined as the process of disguising illegal sources of money so that it looks like it came from legal sources. The methods by which money may be laundered are varied and can range in sophistication. In many cases, money laundering involved the transactions at the offshore banking centers.

The Organization for Economic Cooperation and Development (OECD) requires Member States to regulate money laundering. Many regulatory and governmental authorities quote estimates each year for the amount of money laundered, either worldwide or within their national economy.

Key words
money laundering, know-your-customer rule, OECD, FATP Recommendations

International Regulatory Schemes
To prevent money laundering and other unlawful transactions, customer due diligence (고객 주의의무) is first and foremost. It is “Know Your Customer” banking practice or regulation which requires financial institutions to identify the customer up to the standard for identifying the identity of the customer and the beneficiary owner.

Basel Core Principles 1977
While undergoing a series of financial scandals out of the private banking secrecy in the 1970s, there appeared customer due diligence for the first time in the Agreement on Swiss Banks' Code of Conduct between the Swiss Bankers' Association and the banks. Thereafter the customer due diligence was discussed in the Basel Committee documents such as the Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering (1988), the Core Principles for Effective Banking Supervision (“Basel Core Principles”)(1997), and the Core Principles Methodology (1999), and started to be seriously considered with the publication of the report, “Customer Due Diligence for Banks 2001”.

Wolfsberg Anti-Money Laundering Principles
In October 2000 and November 2002, the Wolfsberg Group, an association of international banks, announced the Wolfsberg Anti-Money Laundering Principles on Private Banking, and Wolfsberg Anti-money Laundering Principles for Correspondent Banking. At last, the customer due diligence became de facto international standard that should be adhered to by banks, and with much substance added to the customer due diligence among the 40 FATF recommendations revised in June 2003.

USA PATRIOT Act
Right after the 9.11 terror attack, the United States has played the leading role in the customer due diligence together with the European Union. The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism of 2001 (USA PATRRIOT Act) is a statutory ground to to combat money laundering and terrorist financing.

As a result, these days the anti-money laundering regulations center on the prevention of money laundering and terrorist financing.

AML/CFT Regime in Korea
Likewise, Korea has implemented two laws, i.e., the Financial Transaction Reports Act (특정금융거래정보의 보고 및 이용 등에 관한 법률) and the Prohibition of Financing for Offences of Public Intimidation Act (공중 등 협박목적을 위한 자금조달행위의 금지에 관한 법률) based on the International Convention for the Suppression of the Financing of Terrorism (테러자금조달 억제를 위한 국제협약) and subsequent regulations. Under the Korean anti-money laundering regime, customer due diligence requires financial institutions to pay on customers by identifying and verifying the identity of the customers or identifying the purpose of the transactions and the beneficial owners, in order for the financial products or services they provide not to be abused for money laundering.

In addition, the Act on the Regulation and Punishment of Concealing Proceeds of Crime (범죄수익은닉의 규제 및 처벌 등에 관한 법률) may be invoked as regards money laundering.

On June 21, 2010, KoFIU issued AML/CFT Regulation (자금세탁방지 및 공중협박자금조달 금지에 관한 업무규정), which contains specific provisions concerning customer due diligence and other related preventive measures to be undertaken by financial institutions and casinos. The Regulation was issued based on Article 5 Paragraph 3 of the Enforcement Decree of the Financial Transaction Reports Act and contains legally binding obligations of financial institutions and casinos.