FATF AML Deficiency List
US Dept of State Money Laundering assessment
Corruption Index (Transparency International & W.G.I.)
South Korea is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The latest follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in South Korea was undertaken by in 2020. According to that Evaluation, South Korea was deemed Compliant for 12 and Largely Compliant for 20 of the FATF 40 Recommendations. It was also deemed Highly Effective for 0 and Substantially Effective for 5 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.
US Department of State Money Laundering assessment (INCSR)
South Korea was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).
APG Yearly Typologies Report - 2015
Emerging Trends; Declining Trends; Continuing Trends (INCSR)
Economic crimes such as tax evasion and embezzlement continue to be the most challenging issues. Utilizing tax havens and paper companies to evade tax and illegally moving assets overseas continue to pose problems.
Declining trends are not currently identified by the Korean law enforcement agencies.
Continuing trends include: -
- tax evasion and utilizing tax havens and paper companies,
- association of ML with corruption, embezzlement and bribery of state funds,
- foreigners or individuals associated to foreigners opening accounts in different/multiple banks and
- funds received were withdrawn in cash and via ATM at various locations immediately upon receipt, leaving low balances in the accounts.
US Department of State Money Laundering assessment (INCSR)
South Korea was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
The Republic of Korea (South Korea) has an advanced economy that is dominated by large industrial companies. It is not an offshore banking center. While organized crime does not have a large profile, it is linked to the Japanese yakuza. There also are reports that Korean criminals tried to connect with counterparts in the Chinese triads and Nigerian gangs. Most money laundering in South Korea is associated with domestic criminals, official corruption, and ethnic Koreans living abroad. Drug smuggling in South Korea has increased in recent years. In 2015, $174.8 million of banned substances were confiscated, up 42 percent from a year earlier.
South Korean officials have uncovered numerous underground banking systems being used by South Korean nationals, North Korean defectors, and foreign national workers from China and Southeast Asian and Middle Eastern countries. Reports indicate North Korean defectors living in South Korea are remitting more than $10 million per year to family members in North Korea through illegal banking systems between South Korea and China.
Gambling is legal but highly regulated and limited to non-citizens. The country has eight free economic zones (FEZs), with Incheon International Airport wholly incorporated into one of the zones. While companies operating in FEZs enjoy certain tax and tariff privileges, they are subject to the same general laws on financial transaction reporting as companies operating elsewhere in the country. 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.
EU Tax Blacklist
South Korea was removed from EU Tax Blacklist on 23 January 2018 following "commitments made at a high political level to remedy EU concerns".
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 61
World Governance Indicator – Control of Corruption 77
Corruption presents moderate risks for businesses operating or planning to invest in South Korea. The Criminal Code criminalizes the main forms of corruption, and the Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption & Civil Rights Commission includes a Code of Conduct for public-sector employees and regulates conflicts of interest and asset disclosure. The Improper Solicitation and Graft Act eliminates a requirement to provide direct evidence between a monetary reward and a favor to secure a corruption conviction and holds companies liable for their employees’ corrupt misconduct. Anti-corruption legislation is increasingly enforced in South Korea. Facilitation payments are prohibited. Strict limits for hospitality and gift-giving to public officials have come into force. South Koreans recently witnessed the largest corruption case the country has ever seen. Following numerous allegations of corruption and influence peddling, ex-President Park faced impeachment in late 2016 and was, months later, indicted on charges of bribery, abuse of office and other corruption-related offences. The scandal has spread to involve the highest echelons of the conglomerate Samsung as well. For further information - GAN Integrity Business Anti-Corruption Portal
OECD 2018 Report - Korea must enhance detection and reinforce sanctions to boost foreign bribery enforcement
South Korea over the past four decades has demonstrated incredible economic growth and global integration to become a high-tech industrialized economy. In the 1960s, GDP per capita was comparable with levels in the poorer countries of Africa and Asia. In 2004, South Korea joined the trillion-dollar club of world economies.
A system of close government and business ties, including directed credit and import restrictions, initially made this success possible. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption.
The Asian financial crisis of 1997-98 exposed longstanding weaknesses in South Korea's development model, including high debt/equity ratios and massive short-term foreign borrowing. GDP plunged by 7% in 1998, and then recovered by 9% in 1999-2000. South Korea adopted numerous economic reforms following the crisis, including greater openness to foreign investment and imports. Growth moderated to about 4% annually between 2003 and 2007.
South Korea's export focused economy was hit hard by the 2008 global economic downturn, but quickly rebounded in subsequent years, reaching over 6% growth in 2010. The US-Korea Free Trade Agreement was ratified by both governments in 2011 and went into effect in March 2012. Between 2012 and 2015, the economy experienced slow growth – 2%-3% per year - due to sluggish domestic consumption and investment. The administration in 2015 faced the challenge of balancing heavy reliance on exports with developing domestic-oriented sectors, such as services.
The South Korean economy's long-term challenges include a rapidly aging population, inflexible labour market, dominance of large conglomerates (chaebols), and the heavy reliance on exports, which comprise about half of GDP. In an effort to address the long term challenges and sustain economic growth, the current government has prioritized structural reforms, deregulation, promotion of entrepreneurship and creative industries, and the competitiveness of small- and medium-sized enterprises.
Agriculture - products:
rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs; fish
electronics, telecommunications, automobile production, chemicals, shipbuilding, steel
Exports - commodities:
semiconductors, petrochemicals, automobile/auto parts, ships, wireless communication equipment, flat display displays, steel, electronics, plastics, computers
Exports - partners:
China 26%, US 13.3%, Hong Kong 5.8%, Vietnam 5.3%, Japan 4.9% (2015)
Imports - commodities:
crude oil/petroleum products, semiconductors, natural gas, coal, steel, computers, wireless communication equipment, automobiles, fine chemical, textiles
Imports - partners:
China 20.7%, Japan 10.5%, US 10.1%, Germany 4.8%, Saudi Arabia 4.5% (2015)
Investment Climate - US State Department
The Republic of Korea (ROK) has made tremendous economic gains during the past four decades, transforming itself from a recipient of foreign assistance to a high-technology manufacturing powerhouse and middle-income donor country. South Korea experienced real GDP growth of 2.6 percent in 2015, decreasing from 2014 growth of 3.3 percent and falling short of the ROK government’s 2015 real GDP growth target of 3 percent as announced in December 2014. Economic growth in 2015 was constrained by a fall in tourism and domestic consumption largely due to an outbreak of Middle East respiratory syndrome (MERS) in May and a broader 7.9 percent fall in exports from 2014 due to a slow global economic recovery, low oil prices, and reduced demand from the ROK’s top trading partner, China. Growth is expected to remain moderate in coming years, due to the ROK’s relatively developed economy, an aging population, and inflexible labor markets. Economic growth potential for the 2015-2018 period is between 3 percent and 3.2 percent, according to the Bank of Korea, although many private-sector assessments are lower.
Nonetheless, the ROK has weathered global economic uncertainty and continued to remain a generally favorable destination for foreign investment. Following the 1997-98 Asian financial crisis, South Korea made significant progress in reforming its financial institutions and capital markets. In addition, the ROK government took steps to strengthen its competitiveness, enacting measures to boost foreign investment incentives and allow non-Koreans to own land and real property. With these changes, most South Koreans recognize foreign investment and free trade as positive for the nation’s development, despite continuing protectionist sentiment among certain elements of society. The highest levels of the ROK government remained committed to ensuring a level playing field for foreign investors. However, many foreign – and domestic – firms continued to express concern with what is seen as an overly burdensome regulatory environment. Many regulations are unique to South Korea and are not consistent with global standards. The regulations are prescriptive and generally allow only activities that are explicitly authorized, thereby constricting the development of innovative business models. Foreign investors were also concerned about small but significant interest groups that pressure the ROK government to protect the South Korean market from what is perceived as foreign domination. President Park Geun-hye publicly acknowledged that the regulatory environment is seen as an obstacle to investment and initiated efforts to deregulate five sectors: education, healthcare, finance, tourism, and information and communication technology (ICT). Additional measures were announced by the Park administration in February 2016 to remove in select regions regulations that discourage investment in priority sectors, including "sharing economy" services related to housing and transportation. Park has asserted that deregulation is one of her primary economic goals, and administration officials have allowed some participation of foreign business associations in the deregulation process. While foreign and domestic industry remained receptive to Park’s deregulation drive, it also remained cautious about committing additional investments in the ROK.
The Korea-U.S. (KORUS) Free Trade Agreement (FTA), which entered into force on March 15, 2012, was a major step forward in enhancing the legal framework for U.S. investors in South Korea. All forms of investment are protected under the FTA, including equity, debt, concessions, and similar contracts, as well as provision of intellectual property rights. With very few exceptions, U.S. investors are treated the same as South Korean investors (or investors of any other country) in the establishment, acquisition, and operation of investments in South Korea. In addition, this equal treatment of domestic and foreign investors is backed by a transparent international arbitration mechanism, under which investors may, at their own initiative, bring claims against the government for an alleged investment breach. Submissions to investor-state arbitration tribunals as well as their hearings will be made public. The U.S. government continues to work closely with the ROK government to ensure full implementation of the KORUS FTA.
Improvement in the consistency of the ROK government’s interpretation, transparency, and timeliness in the application of foreign direct investment (FDI) regulations would enhance South Korea’s investment climate. Unclear and opaque regulatory decision-making remained a significant concern, including informal “window guidance.” This can discourage FDI by creating uncertainty for investors and fostering an impression that the ROK remains hostile to foreign investment. Sector-specific improvements in regulatory transparency have been made: January 2016 financial sector reforms require regulators to provide all guidance in written form, and companies cannot be punished for not following oral guidelines.
Regarding labor, South Korea boasts a hard-working, educated workforce and high levels of institutional labor protections. However, foreign investors cited volatility in labor-management relations and increasing labor costs as issues that can hamper FDI. The Park administration has advocated for reforms to bring greater flexibility to the labor market while improving the benefits provided to part-time and contract workers. The National Assembly, however, has not approved associated bills submitted by the government in September 2015.
In 2015 the Ministry of Trade, Industry, and Energy (MOTIE) reported that inbound FDI to South Korea rose to a record high USD 15.9 billion, up 32 percent from 2014. Foreign investment in the service sector - mostly from the United States and China - led the increase, while FDI inflows to manufacturing industries fell by 0.7 percent from 2014. South Korea experienced net portfolio outflows of USD 2.9 billion in 2015, as investors reallocated capital in anticipation of a rise in the U.S. interest rate and its impact on emerging markets. Foreign investment in South Korean bonds was USD 396 million in 2015, as the return on ROK sovereign debt and other securities remained competitive in an environment of low interest rates in advanced economies. The ROK’s sovereign debt rating stood higher than that of Japan and Taiwan, but below the United States’ rating, according to Moody’s and Fitch credit ratings. The high ranking reflected the ROK’s strong fiscal fundamentals, increasing current account surplus, and record-high net international investment position, in addition to its ability to withstand domestic risks and external shocks, including elevated tensions between North and South Korea in early 2016 due to North Korean nuclear and missile testing.
U.S. FDI in South Korea, according to MOTIE, came to USD 27.9 billion as of December 2015, or 16.5 percent of South Korea’s stock of FDI since the 1960s, and comparable to Japanese investment totaling 29.5 billion, or 17.5 percent of South Korea’s stock of FDI for the same time period. Investments from the United States in 2015 increased 25 percent (USD 5.47 billion) over the previous year, whereas investments from Japan decreased over 43 percent. Japan recorded USD 1.2 billion of FDI into South Korea in 2015, much reduced from the USD 2.1 billion it recorded in 2014, as the yen depreciated significantly against the South Korean won under Japan’s continued policy of quantitative easing. The finance, insurance, logistics, and business service sectors are expected to absorb the majority of FDI in South Korea in the near future, largely through mergers and acquisitions.
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