Minimize the side effectsBoth ruling and opposition politicians are pushing legislation that would ban financial transactions using borrowed names. Under their proposals, such activities would result in criminal charges and the accounts would be prohibited from being returned to the original owner.
But financial authorities, including the Financial Services Commission, are strongly against such bills because if such banking transactions are strictly banned, the financial industry could see massive setbacks and losses. They also argue that innocent investors or account holders could easily become labelled a criminal and victimized without realizing they had done anything wrong.
We agree with both sides of the argument. The financial law that requires all transactions to be conducted using your real name in principle bans trade under borrowed names. The real-name financial system was put into place two decades ago in order to establish healthy order in the industry and stave off the possibility of corruption and irregularities in the process.
But the practice of opening accounts in borrowed names has continued, and is commonly used in illegal activities such as embezzlement, tax evasion, money laundering and the amassing of slush funds. Calls to ban borrowed name financial transactions and impose harsher penalties against offenders have been gaining momentum, particularly after former President Chun Doo Hwan and jailed CJ Group Chairman Lee Jae-hyun were found to have borrowed other people’s names in order to stash away massive sums of money and evade taxes in tax havens like the Virgin Islands.
However, we also understand the financial authorities’ worries about the side effects if borrowed-name trade is banned. Civic groups and private organizations tend to open accounts by borrowing a certain member’s name to manage money for their groups. Parents also open savings accounts in the name of their children; couples run joint accounts as well.
If the government imposes a total ban on creating accounts with borrowed names, these everyday practices could be disrupted, causing huge confusion to consumers and losses for the financial industry. People could shun banks and instead prefer the convenience of a safe when putting away their savings. This is why borrowed names have been tolerated all these years.
Any ban on borrowed-name trade should be incremental. The practice should be prohibited in principle, but enforcement should be conducted in a soft-landing fashion in order to minimize the side effects and confusion. The action should be taken gradually, after enough buffers have been provided.