We should adopt an Anti-money Laundering policy which complies with international standards, immediately.
4. Mar. 2020.
In April, the FATF (Financial Action Task Force) has published the Mutual Evaluation Report of the Republic of Korea (Korea) on anti-money laundering and counter-terrorist financing measures, which was processed from January 2019 to February 2020. The FATF sets international standards and evaluates countries based on those standards to encourage them to work together to combat money laundering and terrorism financing and evaluates their performance.
Korea has received the “Enhanced Follow-up” from the FATF report. The evaluation has two main sections, assessing that 1) whether a country’s laws, regulations, or other measures are at present to prevent money laundering and terrorist financing (technical compliance ratings), and 2) whether a country’s system is effective (effectiveness ratings). By receiving “Enhanced Follow-up”, South Korea must report back at the following plenary meetings, which occurs in 1-1.5 years’ basis, and this is much more frequent than the “Regular Follow-up” which countries have to report back in 3 years’ basis.
According to the outcome, Korea has got positive marks on the elements including financial intelligence and asset recovery, but other elements, mostly, require improvement. The report states that the country does not legally oblige the Designated Non-Financial Business and Professions (DNFBPs), such as lawyers and accountants, to support anti-money laundering and counter-terrorist financing. It also points out that Korea does not have an adequate, relevant policy. At the same time, the FATF recommends countries to manage beneficial owners to stop money laundering through legal entities and trusts. Likewise, Korea was rated ‘non-compliant’ for not having Politically Exposed Persons (PEPs). As large-scale financial crimes often occur among PEPs, it is critical to adopt an institutional framework to prevent money laundering.
It is important to note that the comments made by the FATF on the implementation of the legal system highlight anti-money laundering and counter-terrorist financing, especially for financing companies. The report seems to concern that financing institutions report merely to show off. The reporting of financial institutions, a major legal framework concerning anti-money laundering, may not be well implemented.
The result was predictable. This is because Korea was ranked the lowest among the G20 countries from the investigations conducted by the Transparency International (TI), in 2015 and 2017, and its outcomes are quite similar to the outcome of the FATF report. The biggest gap between Korea and other European countries was from the elements collecting and disclosing beneficial ownership information of companies, trusts, and requiring both financing and non-financing institutions an obligation to collect beneficial ownership information (table1). This shows that it is highly related to that of the FATF mutual evaluation report.
Based on the TI’s investigation, the Transparency International Korea (TI-K) has been requiring the government to comply with the standards recommended by international organisations such as the FATF and G20. However, the FATF report clearly shows that the government has been overlooking its importance.
The FATF Mutual Evaluation Report is crucial in rating the transparency and competitiveness of Korea, as it has become the standard in Korea to measure the transparency of financial and business systems in organizations, including credit-rating agencies, and so must be well recognized.
Therefore, the government must take the FATF mutual evaluation report seriously and provide actions immediately that can implement international standards to prevent money laundering, concealing proceeds of crime, terrorist financing, and the spread of weapons of mass destruction.
As a response, the recommendations by the FATF report must be followed. The recommendations can help to increase the performance of financial institutions and casinos that are already implemented, provide obligations related to DNFBPs money laundering, improve the verification of beneficial ownership of legal entities and trusts, strengthen prosecution and enforcement of money laundering crimes. Likewise, the recommendations related to risks posed by PEPs must comply with international standards. It is also necessary to consider establishing Beneficial Ownership Registers, which the EU requires countries to implement to prevent money laundering and the acquisition of the proceeds of crime by improving verifications of beneficial ownership.
Sang-Hak, Lee
Co-Chairperson, Transparency International Korea
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Translated by: Sohjung Lee