Gov’t urges banks to beef up fraud tracking

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Gov’t urges banks to beef up fraud tracking

The country’s financial watchdogs vowed to strengthen their inspection of local financial institutions’ monitoring practices meant to combat money laundering in Korea, part of an effort to make the country’s financial system more transparent amid increasing concerns about suspicious transactions.

The number of suspicious transaction reports from local banks has more than doubled in recent years, from 290,000 in 2012 to 703,000 last year, according to a report from the Financial Supervisory Service and Korea Financial Intelligence Unit (KoFIU) on Friday. While the quantity has dramatically increased, the agencies said the quality of many reports was less than adequate, making it difficult for the KoFIU to analyze their legitimacy.

The KoFIU was established in 2001 to monitor illegal financial transactions in the country. Its primary focus is to prevent money laundering schemes and evaluate suspicious transactions. Any cases found to be connected with money laundering or other financial crimes are then handed over to law enforcement.

“Right now, many financial institutions in Korea have established internal monitoring standards on money laundering as a reference rather than a set regulation,” said Kim Ji-woong, an official at the planning and administration office of the KoFIU. “To remedy this and to better satisfy international standards, we will have the banks include content related to money laundering into their policy standards. If necessary, we will make legal grounds to enforce changes and take legal action when violations arise.”

Kim added that Korea will have to work on meeting international criteria established by the Financial Action Task Force (FATF), an intergovernmental organization that develops and promotes policies to combat money laundering and terrorism financing.

The task force created a recommended guideline in 2012 on effectively implementing measures to curb money laundering and terrorism financing. It has since been monitoring the progress of its members putting the measures into practice.

“Right now in Korea, money laundering prevention measures are only applied to financial institutions,” Kim said. “But the FATF recommends nonfinancial institutions and professionals such as tax accountants and lawyers to adopt the measures as well.”

The task force in 2014 also recommended countries and financial institutions adopt a risk-based approach to better monitor money laundering and terrorism financing risks to which they may be exposed. Kim said that while the approach has been taken up by local financial institutions beginning this year, it is yet to spread to insurance or securities companies in Korea. “This is especially crucial in our effort to increase Korea’s monitoring standards to better reflect international standards.”

“Countries such as the United States and China made their screening processes stricter recently,” Kim said. “Korean financial institutions that operate businesses in those countries may fail to meet their criteria if the domestic system isn’t in line with international norms. If Korean financial companies are reprimanded as a result, this could devastate not only their reputation internationally but also the nation as whole.”

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