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Korea, Republic of.

The Republic of Korea (ROK) has not been considered an attractive location for international financial crimes or terrorist financing due to foreign exchange controls, although these are gradually being phased out by 2009. 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. As law enforcement authorities have gained more expertise investigating money laundering and financial crimes, they have become more cognizant of the problem.

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. The Financial Transactions Reports Act (FTRA), passed in September 2001, requires financial institutions to report suspicious transactions to the Korea Financial Intelligence Unit (KoFIU), which operates within the Ministry of Finance and Economy. KoFIU was officially launched in November 2001, and 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 the Public Prosecutor's office, and, as of 2006, also to the Korean police.

In 2006, the government implemented several measures to further strengthen its anti-money laundering regime by introducing mandatory currency transaction reporting (CTRs) for high-value cash transactions, on top of continued suspicious transaction reporting. Beginning in January 2006, financial institutions have been required to report within 24 hours all cash transactions of 50 million won ($49,213) or more by individuals to KoFIU. That reporting threshold will be lowered to 30 million won ($29,528) in 2008 and to 20 million won ($19,685) in 2010. Since January 2006, financial institutions have also been required to perform enhanced customer due diligence (CDD), thereby strengthening customer identification requirements set out in the Real Name Financial Transaction and Guarantee of Secrecy Act. Under the enhanced CDD guidelines, financial institutions must identify and verify customer identification data, including address and telephone numbers, when opening an account or conducting transactions of 20 million won ($19,685) or more.

The STR system was strengthened in 2004 with the introduction of a new online electronic reporting system and the lowering of the monetary threshold under which financial institutions must file STRs from 50 to 20 million won (from $49,213 to $19,685). Improper disclosure of financial reports is punishable by up to five years imprisonment and a fine of up to 30 million won ($29, 528). Between January 1, 2002, and June 30, 2006, KoFIU received a total of 30,544 STRs from financial institutions. The number of such cases has continued to climb noticeably each year, from 275 STRs in 2002, to 1,744 in 2003, 4,680 in 2004, and 13,459 in 2005. In the first half of 2006, there were 10,386 STRs submitted to KoFIU, a 10 percent increase over the same period in 2005. Since 2002 through the first half of 2006, KoFIU has analyzed 29,626 of these reports and provided 4,268 reports to law enforcement agencies, including the Public Prosecutor's Office (PPO), National Police Agency (NPA), National Tax Service (NTS), Korea Customs Service (KCS), and the Financial Supervisory Commission (FSC). Of the 4,268 cases referred to law enforcement agencies, investigations have been completed in 1,643 cases, with nearly half of those (806 cases) resulting in indictments and prosecution for money laundering.

In addition, KoFIU supervises and inspects the implementation of internal reporting systems established by financial institutions and is charged with coordinating the efforts of other government bodies. Officials charged with investigating money laundering and financial crimes are beginning to widen their scope to include crimes related to commodities trading and industrial smuggling, and continue to search for possible links of such illegal activities to international terrorist activity. In 2006, KoFIU continued to strengthen advanced anti-money laundering measures (such as the STR and CTR systems) to meet global standards such as Clause 5.8 of the Methodology for Assessing Compliance with the Financial Action Task Force (FATF) 40 Recommendations. KoFIU encouraged financial institutions including small-scale credit unions and cooperatives to adopt a differentiated risk-based CDD system, focusing on types of customers and transactions, by offering them comprehensive training programs.

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, and securities companies. Following the late-2005 arrest of a Korean business executive charged with laundering 8.3 billion won ($8.17 million) to be used to bribe politicians and bureaucrats, KoFIU in 2006 began considering revisions to the Financial Transaction Reports Act to impose anti-money laundering obligations on casinos. Intermediaries such as lawyers, accountants, or broker/dealers are not covered by Korea's money laundering controls. 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.

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 working in financial institutions are not to 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 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. As of late 2006, two versions of a new counterterrorism bill are pending in Korea's unicameral legislature, the National Assembly. Previous attempts to pass similar bills have not succeeded. Many politicians and nongovernmental organizations (NGOs), recalling past civil rights abuses in Korea by former administrations, oppose the passage of counterterrorism legislation because of fears about possible misuse by the National Intelligence Service. The proposed legislation is crafted to allow the Korean Government additional latitude in fighting terrorism, though general financial crimes and money laundering have already been criminalized in previously enacted laws. The pending counterterrorism bill, if passed, would permit the government 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 KoFIU, the government circulates to its financial institutions the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee's consolidated list, the list of Specially Designated Global Terrorists designated by the United States pursuant to E.O. 13224 and those listed by the European Union under relevant authorities. Korea 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 U.S. Executive Order 13224 of December 12, 2002. 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.

Korean government authorities continue to investigate the underground "hawala" system used primarily to send illegal remittances abroad by South Korea's approximately 30,000 foreigners from the Middle East as well as thousands of undocumented foreign workers (mainly ethnic Koreans from Mongolia, Uzbekistan, and Russia). Currently, gamblers who bet abroad often use alternative remittance and payment systems; however, government authorities have criminalized those activities through the Foreign Exchange Regulation Act and other laws. According to an October 2006 Korea Customs Service report, 1,159 hawala cases worth 5. 26 trillion won ($4.2 billion) were recorded in 2002; 1,311 cases amounting to 2.2 trillion won ($1.84 billion) in 2003; 1,917 cases totaling 3.66 trillion ($3.2 billion) in 2004, and 1,901 cases worth 3.56 trillion won ($3.47 billion) in 2005. The majority of early hawala cases were related to the U.S. through 2004, but in 2005 the bulk of cases involved Japan (45 percent or $1.56 billion), followed by the U.S. (25 percent or $867 million) and the PRC (19 percent or $674 million).

South Korea 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, Korea 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 Korean Government established 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. Its legal framework does not allow civil forfeiture.

Korea continues to address the problem of the transportation of counterfeit international currency. The Bank of Korea reported that through September 2006, there were 371 reported cases of counterfeit dollars worth $36,450, compared to 1060 cases of $105,440 worth in the first nine months of 2005. Bank experts confirm that the amount of forged U.S. currency is on a sharp decline, reflecting local bank findings that the number of counterfeit $100 notes found during the first nine months of 2006--about $36,100-fell to about one third of that found in the same period of 2005. In April 2005, the local press reported that police arrested a Korean who had smuggled $140,000 in $100 "supernotes" from China-a record amount for South Korea. However, no similar incidents were reported as of late 2006.

South Korea has a number of free economic zones (FEZs) that enjoy certain tax privileges. However, companies operating within them are subject to the same general laws on financial transactions as companies operating elsewhere, and there is no indication these FEZs are being used in trade-based money laundering schemes or for terrorist financing. Korea mandates extensive entrance screening to determine companies' eligibility to participate in FEZ areas, and firms are subject to standard disclosure rules and criminal laws. As of November 2006, Korea had seven FEZs, as a result of the June 2004 recategorization of the three port cities of Busan, Incheon, and Kwangyang as FEZs. They were recategorized from their previous designation of "customs-free areas" in order to avoid confusion from the earlier dual system of production-focused FEZs, and logistics-oriented "customs-free zones." Incheon International Airport is slated to become the eighth FEZ.

Korea 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. Korea is a party to the UN International Convention for Suppression of the Financing of Terrorism. The ROK also signed in

December 2003, but has not ratified, the UN Convention against Corruption. Korea is an active member of the Asia/Pacific Group on Money Laundering (APG), and in 2004 hosted the APG annual meeting. Korea also became a member of the Egmont Group in 2002. In August, 2006, the FATF invited Korea to become an Observer to the organization- the first step in gaining full membership. 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 FIU continues to actively pursue information-sharing agreements with a number of countries, and had signed memoranda of understanding with 31 countries/jurisdictions-the latest being Hong Kong-in November 2006.

The Government of the Republic of Korea should criminalize the financing and support of terrorism and should continue to move forward to adopt and implement its pending legislation. Among other priorities, the government should extend its anti-money laundering regime to nonfinancial institutions such as casinos and informal lending mechanisms widely recognized as potential blind spots. Just as importantly, the Republic of Korea 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, Korean law enforcement officials and policymakers now understand the potential negative impact of such activity on their country, and have begun to take steps to combat its growth. Their efforts will become increasingly important due to the rapid growth and greater integration of Korea's financial sector into the world economy.
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Title Annotation:Country Reports
Publication:International Narcotics Control Strategy Report
Geographic Code:9SOUT
Date:Jan 1, 2007
Words:2312
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