Proper conditions should be established to handle money laundering activities
Jung Duck-Bong (Vice President, Korea Financial Industry Union)
TI-Korea: Could you please give us your assessment of the meaning and results of beneficial ownership verification policy by the financial institutions.
Jung Duck-Bong: I fully agree with the need to introduce a beneficial ownership verification system. Chaebol reform must be implemented. I think the task of verifying the beneficial owner of the property is considered to be an important tool to prevent property damage and tax evasion using borrowed names.
TI-Korea: What do you think are the results of the bank’s implementation of beneficial ownership verification policy?
Jung Duck-Bong: The verification of beneficial ownership is only a formality act of document submission at the counter. I think it has limitations because it only deals with the requirements. The information, which can be checked at the teller’s window, is the personal information submitted by the customer. The bank staff is limited in adequate client risk assessment by looking only through such data. Although the system for client’s risk assessment is working, the bank staff are missing issues that frequently occur. Sometimes they discover the need for additional required information by the time the client has already left. In such situations, it is not easy to ask the client to return.
TI-Korea: Up to what degree can the bank staff verify client’s information?
Jung Duck-Bong: It is only the client’s personal information. They can only verify the existing client’s information in the bank, but nothing else. We cannot check what information other financial institutions have. This is related to the issue of protecting private information. The bank has enormous information. If this information is linked to financial institutions, National Tax Service and other institutions, it will be very helpful in promoting transparency. However, we should be cautious when sharing information due to information leakage issues. In FKIU’s (Korean Financial Industry Union) case, we oppose the idea of sharing information. Although being transparent is helpful, information leakage is risky.
TI-Korea: What do you think are the issues and limitations of the current financial institution’s beneficial ownership information verification policy?
Jung Duck-Bong: In order to implement the system properly, I think, the bank staff can execute their job properly with outstanding ethical awareness. However, there are other problems. The bank staff has no choice but to take care of their clients and improve the bank’s performance. When we try to prevent money-laundering activities, we get complaints from the customers, so problems occur at the teller’s window. Therefore, when customers leave, tellers will have to suffer heavy damages. Because of such issues, situations may arise where it is difficult to require an additional information for beneficial ownership verification. In fact, we can say that it happens at the teller’s window that sufficient due diligence to a client is not properly given. I think due to customer management issues, lack of time and staff resources, such problems occur without being noticed at times.
TI-Korea: Since they are not being noticed right away, will they become problems in the future?
Jung Duck-Bong: In fact, the bank staff is processing things and thinking, “it will not cause any problems.” The bank staff cannot deal with this issue in a daily business. This issue is not their priority (to be solved). It is only secondary. Their performance is more important, they need to get good evaluation results, so it is difficult to spend time and energy on this issue. The evaluation is so important for the bank staff you can even joke that if the unification of the Korean peninsula issue enters into the evaluation items of a bank, the unification can also happen.
In case of a fake deposit bank passbook, when somebody like a homeless person wants to open a bankbook, they prepare and bring all the necessary documents. There is no problem with that. Nevertheless, if an unusual transaction occurs after that, we should look into it. It is a difficult thing to deal with at the bank counter. In this case, we usually call the customer to confirm, but if the customer says it is just a usual transaction, then that is it.
TI-Korea: They say there are some cases in which the bank staff is being punished for not being able to verify the beneficial ownership information properly.
Jung Duck-Bong: When a significant problem arises, the bank’s compliance officer or the branch manager and such persons (officers) have to take responsibility for it. However, when the bank staff does not fulfill his/her due diligence, it is only his/her own responsibility. The teller will take the responsibility, and it is also a problem. I cannot agree with the fact that the teller is responsible when he/she accidentally makes a mistake. I know that the Financial Supervisory Service imposes a penalty of 3-5 million won on the teller.
TI-Korea: financial institutions or senior executives do not take the responsibility (if something is wrong)?
Jung Duck-Bong: In the case of a minor mistake, the bank staff will take responsibility. In case of a major accident, the bank’s branch manager, Internal Control Officer, and the head office’s Compliance Officer will take the responsibility. However, because banks have so many branch offices, the Compliance Officer will face many difficulties in managing such cases.
TI-Korea: Do banks provide enough training or number of staff to verify the beneficial owners?
Jung Duck-Bong: Yes, training is being conducted. However, it is difficult to say that the level of understanding about the importance of this work is sufficient. Such things are done as only introductory materials at the meeting of the branch office.
We believe that best practices, good practices, education and sharing of case examples are necessary to help identify and judge at the teller’s window. Training should be more than saying “money-laundering must be dealt with properly.” It should be more than pro forma training. In addition, there is a way of giving incentives. Moreover, there is a problem of lack of human resources to assess at the teller’s window.
It would be good if there was another professional workforce. For example, we can consider introducing someone as a “financial information sheriff,” who can take charge of this task. It can also create new jobs. Especially for non-face-to-face customers (Internet customers, etc.). A huge amount of money moves in the early morning, does not it? The huge amount of transaction goes back and forth in a bank account. The branch’s internal control officer is responsible for verifying these transactions. However, the Internal Control Officer does not have the expertise to track it down and does not even have the authority to track it. Moreover, there are doubts about their ability to investigate it. It cannot be done at the bank’s branch office. They do not have that expertise to do it, besides they do not have available time to do such things.
TI-Korea: What can you say about human resources and available time necessary to handle these tasks?
Jung Duck-Bong: I want to talk about it. (Because we do not have enough human resources and time) In fact, we cannot do it. We just hope nothing wrong will happen. Often, things just happened to be processed so long as we did not check them thoroughly. I think it will become a problem in the future.
TI-Korea: Could you please tell me more about the Finance Information Sheriff.
Jung Duck-Bong: I think it is necessary to make this undertaking available to outsiders, not to insiders. The internal control officer must check suspicious transactions, such as substitute transactions, one by one, but it is questionable whether this is done faithfully in practice. Since this is related to performance, it can have limitations. That is why it seems to be appropriate for an outsider, not an insider, to perform this work. In addition, considering the professionalism and the work capacity of the bank staff who do the front service, I think it would be more effective if a professional worker did this work. Since the amount of this work is not much, I think it will be possible for retired bank staff, or others, to join and manage about two to three branches.
TI-Korea: Do you have anything to ask a financial institution regarding the beneficial ownership verification policy?
Jung Duck-Bong: It seems that too much performance-focused work is the biggest problem. Because the bank staff has to focus on their own performances, even though they think of doing verification of the beneficial owners, they cannot do it.
TI-Korea: What do you think should be the relevant policy to solve the issue of borrowing others names?
Jung Duck-Bong: Indeed, it is a difficult problem. I think raising the ethical standard of bank staff should be a top priority. Eliminating excessive competition and putting this item in their performance index is important. In addition, it is necessary to raise the level of awareness on issues about borrowed name properties. Moreover, I think the role of outside directors and compliance officers is crucial. There is a problem that the outside directors are not properly monitoring the banks.
[Profile]
Duck-Bong Jung, Vice Chairman of the Korean Financial Industry Union Policy Headquarters.
1987 – Graduated from Duksoo High School
1995 – Graduated from Seokyeong University
1999 – Head of the General Affairs department of KB Kookmin Bank Trade Union
2002 – Graduated from the Department of Real Estate, Kyunghee University School of Public Administration
2004 – Vice President of KB Kookmin Bank Trade Union
2008 – Graduated from the Department of Labor and Welfare Policy at Korea University