Korea, Republic of
South Korea is not considered an attractive location for international financial crimes or terrorist financing, partly because of existing foreign exchange controls. However, such activities do exist. As law enforcement authorities have gained more expertise investigating money laundering and financial crimes, they have also become more cognizant of the problem. In general, the still fairly strict foreign exchange controls in place make it difficult for drug-related or terrorism-related money laundering to flourish. Most money laundering appears to be associated with domestic criminal activity or corruption and official bribery. Still, criminal groups based in South Korea maintain international associations with others involved in human and contraband smuggling and related organized crime. On the whole, the South Korean government has been a willing partner in the fight against financial crime, and has pursued international agreements toward that end.
Money laundering related to narcotics trafficking has been criminalized since 1995, and financial institutions have been required to report transactions known to be connected to narcotics trafficking to the Public Prosecutor�s Office since 1997. All financial transactions using anonymous, fictitious, and nominee names have been banned since the 1997 enactment of the Real Name Financial Transaction and Guarantee of Secrecy Act. The Act also requires that, apart from judicial requests for information, persons engaged in financial institutions not provide or reveal to others any information or data on the contents of financial transactions without receiving a written request or consent from the parties involved. However, secrecy laws do not apply when such information must be provided for submission to a court or as a result of a warrant issued by the judiciary.
In a move designed to broaden its anti-money laundering regime, the Republic of Korea (ROK) also criminalized the laundering of the proceeds from 38 additional offenses, including economic crimes, bribery, organized crime, and illegal capital flight, through the Proceeds of Crime Act (POCA), enacted in September 2001. The POCA provides for imprisonment and/or a fine for anyone receiving, disguising, or disposing of criminal funds. The legislation also provides for confiscation and forfeiture of illegal proceeds.
South Korea still lacks specific legislation on terrorism financing. In 2002, the National Intelligence Service (NIS) submitted an antiterrorism bill to the National Assembly, but it has not yet been passed. Many politicians and nongovernmental organizations (NGOs), recalling past civil rights abuses in Korea by the government, oppose the pending antiterrorism legislation because of fears about possible misuse by the National Intelligence Service. The proposed legislation is crafted to allow the Republic of Korea Government (ROKG) additional latitude in fighting terrorism, though general financial crimes and money laundering have already been criminalized in previously enacted laws.
The pending antiterrorism bill, if passed, would permit the ROKG to seize legitimate businesses that support terrorist activity. Currently, under the special act against illicit drug trafficking and other related laws, legitimate businesses can be seized if they are used to launder drug money, but businesses supporting terrorist activity cannot be seized unless other crimes are committed. At this time, there are no known charitable or nonprofit entities operating in Korea that are used as conduits for the financing of terrorism.
Through its Korean Financial Investigative Unit (KoFIU, authorized by the Ministry of Finance and Economy) the ROK circulated to its financial institutions the list of individuals and entities that have been included in the UN 1267 Sanctions Committee�s consolidated list as being linked to Usama Bin Ladin or members of the al-Qaida organization or the Taliban, or that the U.S. Government (USG) or the European Union have designated under relevant authorities. The ROK implemented regulations on October 9, 2001, to freeze financial assets of Taliban-related authorities designated by the UN Security Council. The government then revised the regulations, agreeing to list immediately all U.S. Government-requested terrorist designations under Executive Order 13224 of December 12, 2002. Due in part to Korea�s remaining restrictive foreign exchange laws, which persist despite some recent liberalization, and which render the country unattractive as an offshore financing center, no listed terrorists are known to be maintaining financial accounts in Korea at this time. Korean banks have not identified any terrorist assets. There have been no cases of terrorism financing identified since January 1, 2002.
ROK authorities are just beginning to assess whether the hawala system is an area of concern. Currently, gamblers who bet abroad often use alternative remittance and payment systems; however, government authorities have already criminalized those activities through the Foreign Exchange Regulation Act and other laws. Hawala-type vendors do exist in South Korea and operate primarily among the country�s small population of approximately 30,000 foreigners from the Middle East.
The Financial Transactions Reports Act (FTRA), passed in September 2001, requires financial institutions to report suspicious transactions to a financial intelligence unit (FIU) within the Ministry of Finance and Economy. In November 2001 the Korean Cabinet issued regulations implementing the newly enacted FTRA, and officially launched the Korea Financial Intelligence Unit (KoFIU). KoFIU is composed of 60 experts from various agencies, including the Ministry of Finance and Economy, the Justice Ministry, the Financial Supervisory Commission, the Bank of Korea, the National Tax Service, the National Police Agency, and the Korea Customs Service. KoFIU analyzes suspicious transaction reports (STRs) and forwards information deemed to require further investigation to domestic law enforcement and the Public Prosecutor�s office. Currently, financial institutions must report transactions of over 50 million won (about $42,000) that are suspected of being tied to criminal proceeds or to tax evasion, and they may report transactions in lesser amounts if there are �reasonable?grounds for doing so. Efforts are being made to lower the reporting threshold to 20 million won for suspicious transactions for 2004. Improper disclosure of financial reports is punishable by up to five years imprisonment and a fine of up to 30 million won (about $25,000). In addition, KoFIU supervises and inspects the implementation of internal reporting systems established by financial institutions.
Since its inception in November 2001, KoFIU has received a total of 1,713 suspicious transaction reports (STRs) from financial institutions. It has completed analysis of 1,276 of them, and provided 413 reports to law enforcement agencies as of November 30, 2003, according to KoFIU. Results were disseminated to law enforcement agencies such as the Public Prosecutor�s Office (PPO), National Police Agency (NPA), National Tax Service (NTS), Korea Customs Service (KCS), and the Financial Supervisory Commission (FSC). In terms of large cases, the managing directors of the SK Group, a conglomerate, were prosecuted for laundering 10 billion won ($8.4 million), in checks and securities, in November 2003.
Money laundering controls are applied to nonbanking financial institutions, such as exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings, finance companies, credit unions, credit cooperatives, trust companies, securities companies, insurance companies, credit insurance corporations, and exchange houses. Intermediaries such as lawyers, accountants, or broker/dealers are not covered. Any traveler carrying more than $10,000 or the equivalent in other foreign currency is required to report the currency to the Korea Customs Service.
The ROK actively cooperates with the United States and other countries to trace and seize assets. The Anti-Public Corruption Forfeiture Act of 1994 provides for the forfeiture of the proceeds of assets derived from corruption. In November 2001, the ROK established a system for identifying, tracing, freezing, seizing, and forfeiting narcotics-related and/or other assets of serious crimes. Under the system, KoFIU is responsible for analyzing and providing information on STRs that require further investigation. The Bank Account Tracing Team under the Narcotics Investigation department of the Seoul District Prosecutor�s Office (established in April 2002) is responsible for tracing and seizing drug-related assets. The Seoul District Prosecutor�s Office seized $1.6 million worth of assets related to seven drug trades in 2003, representing a big increase from 2002. The prosecutor�s office seized $109,000 of assets related to illegal foreign exchange transactions in 2002, of which $53,000 was related to drug trafficking. The ROKG plans to establish six additional new bank account tracking teams in 2004 to serve out of the District Prosecutor�s offices in the metropolitan cities of Busan, Daegu, Kwangju, Incheon, Daejon and Ulsan, to expand its reach.
The ROK continues to address the problem of the transportation of counterfeit international currency. In the first ten months of 2003, the Central Bank reported that local banks uncovered 136 cases of counterfeit foreign currency�representing an increase of 25 percent over the same period of 2002. Among these counterfeit cases, 89 percent involved U.S. dollars, an increase of about one percent from the previous year.
The ROK is a party to the 1988 UN Drug Convention and, in December 2000, signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. In October 2001, the ROK signed the UN International Convention for Suppression of the Financing of Terrorism, but has not yet ratified it. The ROK also signed in Dec. 2003, but has not ratified, the UN Convention Against Corruption, which is not yet in force. The ROK is an active member of the Asia/Pacific Group on Money Laundering, and in 2002 KoFIU assumed the position of co-chair. The ROK also became a member of the Egmont Group in 2002 and applied for membership in the Financial Action Task Force. An extradition treaty between the United States and the ROK entered into force in December 1999. The United States and the ROK cooperate in judicial matters under a Mutual Legal Assistance Treaty, which entered into force in 1997.
In addition, the Korean FIU continues to actively pursue information-sharing agreements with a number of countries. KoFIU signed memoranda of understanding with Belgium (March 2002), Poland (October 2002), the United Kingdom (October 2002), Brazil (February 2003), Australia (May 2003), and Colombia and Venezuela (November 2003) to facilitate the exchange of information on money laundering. KoFIU is negotiating similar MOUs with the United States, Japan, and Canada. These agreements are expected to enhance the government�s asset tracing and seizure abilities.
The passage of the terrorism financing bill, if coupled with existing recent measures, would provide the ROKG with powerful tools to combat money laundering. Korea should criminalize the financing and support of terrorism and should continue to move forward to adopt and implement its pending legislation. The ROK should extend its anti-money laundering regime to financial intermediaries. The ROK should continue its policy of active participation in international anti-money laundering efforts, both bilaterally and in multilateral fora. Spurred by enhanced local and international concern, South Korean law enforcement officials have begun to fully grasp the negative potential impact such activity has in their country and to take steps to combat its growth. The ROK should also accede to the UN International Convention or the Suppression of Terrorism.