The 10th ASOSAI Research Project (3rd Meeting)

Evaluating of the Fight against Corruption and Money Laundering

: Survey results of Korea

28 August, 2013 (Bangkok, Thailand)

Shin, Min Chul Senior Research Fellow

The Board of Audit and Inspection of

Korea

Table of Contents

I. Introduction

II. Evaluation of Current Situation of Anti- Corruption

III. Evaluation of Current Situation of Anti-Money Laundering

IV. Conclusion

I. Introduction

• Previous ASOSAI Research Survey shows that the perception of Corruption in Korea is not good even though the government attempts to enhance integrity.

• One of the most persistent problems for the past generation’s anti-corruption reform movement has been a lack of detailed measurements and feedback

• This survey shows more detailed ‘the current situations and

government activities’ for anti-corruption and money laundering in Korea

II. Evaluation of Current Situation of Anti-Corruption

PART I: National Anti-Corruption Strategy and Action Plans

PART II: Anti-Corruption AgencyPART III: Legal BackgroundPART IV: International Cooperation PART V: Promoting Awareness and other matters

Information of Respondents (10)

ACRC (Anti-Corruption and Civil Right Commissions)BAI (Board of Audit and Inspection, Korea SAI) MOFA (Ministry of Foreign Affairs)DOJ (Department of Justice)

P1: National Anti-Corruption Strategy and Action Plans

• Korea has an stand-alone anti-corruption strategy and its action plans (Q1,3)

• Main contents in strategy (Q2) - Levels and trends of corruption and assessment of previous anti-corruption efforts - Level of implementation of previous strategy - Objectives and priority areas - Prevention and criminalisation/law-enforcement measures, Public participation/education - Monitoring and assessment mechanism and criteria

• Main contents in action plans (Q4)- Specific measures for each objective - Specific institutions responsible for the implementation of each measure - Time-frame for implementation - Criteria for assessing implementation- Budget specially allocated for the implementation of the action plan - Institution responsible for co-ordination, implementation and reporting

P1: National Anti-Corruption Strategy and Action Plans

• Main Measures to fight corruption (Q6) - Open and transparency in the operation of agencies - Development and implementation of entitlements, norms and standards - Administrative reform - Development and enforcement of the code of conduct and the code of professional ethics - Penalty forms to heads of the agencies in case of occurrence of corruption - Salary payment via bank account - Declaration of assets and income - Regulation of returning gift by the public officials

P2: National Anti-Corruption Agency

• Korea Has an anti-corruption Agency (Q7, Q9, Q10) - ACRC (Anti-corruption and Civil Right Commissions) : Evaluate the level of integrity in government bodies periodically (every year) : Hot-line for whistleblowers (website, telephone, e-mail) * BAI (Board of Audit and Inspection, Korea SAI) is also included

• Main functions of the anti-corruption agencies (Q8) - Monitor and evaluate the implementation of the anti-corruption strategy - Collect, centralize and exploit the denunciations - Conduct investigations  - Disseminate knowledge on anti-corruption activities - Raise public awareness about the fight against corruption - Identify the causes of corruption and to propose to the competent authorities of measures to help eliminate it - Draw a risk map of corruption in the country - Anti-corruption screening of legal acts - Research and analysis on corruption - Keep a database on the statistics regarding cases of corruption year by years & Research and analysis on conflict of interest in the public management S

P3: Legal Background

• Korea has various laws to criminalize various corrupted activities (Q11) - Act on the Prevention of Corruption (2001) - Act on Special Cases Concerning the Confiscation and Return of Property Acquired Through Corrupt Practices (2008) - Act on Protection of Public Interest Reporters (2011) etc.

• Law governing the financing political parties (Q14)- Political Funds Act (2005)

• Law governing code of ethics of public officials (Q15, Q18)- Public Service Ethics Act (1981)* Legal Obligation for public officials to report corruption-related offence • Regulation governing declaration of assets by public officers (Q16)- ‘Reporting public officers assets’ based on Public Service Ethics Act

• Accounting and auditing standards (Q17)- Public Audit Standard (1999), Korea Accounting Standards(2000)

P3: Legal Background

• Measures needed to fight against corruption (Rank) (Q13) 1: Preventive Policies and measures 2: Detective actions 3: Punitive measures • Type of corruption should be enacted in new legislation (Q12) - Abuse of position/power - Influence peddling - Nepotism

• Opinion on the implementation of the current rules/regulation (Q19)- Good

P4: International Cooperation

• Korea has ratified United Nations Convention against Corruption (UNCAC) in 2003 & begun the peer review process (Q20, Q21)

• We also join the OECD Anti-bribery Convention and The International Anti-Corruption Academy (IACA) (Q22)

• Opinion on the success level of international cooperation - Extradition Low Moderate High - Mutual legal assistance Low Moderate High - Asset recovery Low Moderate High - Cooperation with law authorities Low Moderate High - Cooperation with the private sector Low Moderate High

P5: Promoting Awareness and Other Matters

• Assess the effect of Media in fighting corruption(Q24)- Helped, but information sometimes inaccurate and unobjective

• Assess the society in tackling corruption (Q25)- Actively but not effectively

• Compare the level of anti-corruption efforts in past years (Q26)- Much higher than past years

• Provide education/training programs to (Q27)-Public officials-NGO -Business associations and companies -Media, school, general public

P5: Promoting Awareness and Other Matters

• Factors inhibit the result of the fight against corruption(Q28) - Corrupt people are not severely punished - The collusion between law enforcers and corrupt people - Authorized officials lack commitment

• Assess the result of the current fight against corruption (Q29) - Have had positive impact, contributed to prevent corruption • The Role of Citizen Participation (Q30)- Promoting public sector transparency and accountability and citizen participation Slightly higher than past years (All Have)- Engaging civil society in corruption prevention efforts, for example, to invite the civil society organizations (CSOs) in formulation of anti-corruption policy , research funding about anti-corruption, dissemination of knowledge, etc. (All Have)-Complaint system/ Whistle Blower, and Denunciation: Receiving reports and complaints on corruption from citizen (All Have)

III. Evaluation of Current Situation of Anti-Money Laundering

PART I: Legal FrameworkPART II: AML Board/AuthoritiesPART III: Financial InstitutionsPART IV: International Cooperation PART V: Education, Awareness and Other matters

Information of Respondents (6)

KoFIU (Korea Financial Intelligence Unit)BAI (Board of Audit and Inspection, Korea SAI)MOFA (Ministry of Foreign Affairs)ARAC (Anti-Corruption and Civil Right Commissions)

P1: Legal Framework

• In Korea, money laundering is a criminal offence (Q1, Q2) - the Financial Transaction Report Act (FTRA) (2001) - the Proceeds of Crime Act (2001) etc. • Respondents think these laws do not cover all anti-money laundering (AML) (Q3) • Rate the implementation of AML Law (Q4) - Good

• Fiancial Supervisory Service(FSS) is official authority-Under the FSS, it has established a national Financial Intelligence Unit (FIU) in 2001 as a national center for the collecting, analysis, and dissemination of information regarding AML (Q5)

P2: AML Board/Authorities

• FSS measures AML effectively as follows (Q7) - Identify customer and update customer information (identification of customer; classification of customer based on risk level…) - Report, provide and save information (report on great value transaction; report on suspicious transaction) - Gather, treat and transform information about anti-money laundering (gathering, handling information…)

• FSS enjoy independence in following aspects (Q8) - Legal, Functional

• The main functions of FSS are (Q9) - Developing policies and improving legislation - Data collecting, analyzing, evaluation - Supervision & Coordination - Investigations of the cases - Raising awareness in the public - Carry out researches, conducting sector-based studies etc. - Carrying out examinations on the cases - Requesting information and documents from public institutions and so on - Exchange information and documents with counterparts in foreign countries

P2: AML Board/Authorities

• Rank the effectiveness of following Measures concerning AML (Q10) 1: Preventive policies and measures (regulations, internal control systems, etc. ) 2: Detective actions (prosecutions, investigations, audits etc.) 3: Punitive measure (Implementing criminal and disciplinary sanctions etc.)

• FSS and KoFIU has hotline(website, e-mail, phone, ect) to get inform about a suspected AML cases from citizens (Q11)

• Also, FSS updated rules and information about the process of AML (Q12)

P3: Financial Institutions

• All Financial Institutions(FIs) are required to have AML & Know Your Customers (KYC) procedures (Q13)

• FIs are also obliged to comply with Financial Action Task Force (FATA) recommendations (40+9) (Q17) • FIs in Korea has legal obligation concerning AML like (Q14) - Internal controls and procedures to comply with regulatory framework - Thorough client identification - Having an anti-money laundering officer - Client due diligence procedures - Prohibition of anonymous accounts - Employee training programs regarding AML - Independent audit/compliance function - Identification and reporting of suspicious activities to the appropriate authorities - Monitoring program for suspicious or unusual activities

P3: Financial Institutions

• FIs obliged to comply following polices in terms of client due diligence procedures (Q15)- Implementation systems for the identification of its customer, including customer information in the case of recorded transaction, account opening, etc.- Collecting information and assessing its customer’s AML policies and practices.- Screening its customer’s information against sanction lists issued by the government or international bodies

•Most Common type of suspicious transaction report (STR) (Q16) - Inconsistencies with the financial profile of the customer or account - Financial transactions involving the countries considered in the “high risk” category - Unusually large cash transactions - Refusals to show identification - Unusual account activities

P4: International Cooperation

• Rate the ability to cooperate and exchange financial information at international level (Q18) - Fair Level • Cooperation agreements or protocols among the local institutions to share financial information and financial transfers and if its involved with money laundering (Q19)

- MOU and work closely with related agencies including Department of Justice (DOJ), National Police Agency (NPA), National Tax Service (NTS), Korea Customer Service (KCS) and Financial Supervisory Services.

P5: Education, Awareness and Other Matters

• The Role of Citizen Participation in fighting ML (Q20)- Promoting public sector transparency and accountability in citizen participation (All Have)- Engaging civil society in ML efforts, for example, to invite the civil society organizations (CSOs) in formulation of ML policy and dissemination of knowledge, etc. (All Have)- Complaint system/ Whistle Blower, and Denunciation: Receiving reports and complaints on ML from citizen (All Have)

• All the respondents think the penalties of ML incidents are too light (Q21)

• Factors inhibit the result of the fight against ML(Q22) - Money laundering criminals are not severely punished - The collusion between enforcement officers and money laundering criminal - Limitation of citizen’s knowledge about money laundering criminal - Lack of competent and experienced staff to handle money laundering cases - Lack of capacity and financial resources of anti money laundering agencies

P5: Education, Awareness and Other Matters

• Provide education/training programs to (Q23) - Financial Institutions (banks etc.) - Public officials - and so on (Media, school)

• Provide these training workshops for employees of controlling agencies about methods to detect ML (Q25)

• All respondents think the controlling system are the key stone and deterrent for fighting against ML (Q24)

• Assess the current result of fight against ML (Q26)- Have had positive impact, contributed to prevent money laundering

Conclusion

• 3rd Survey Result shows that the Level of Anti-Corruption and AML in Korea has of course made continuous headways, but it is not deemed satisfactory.

• In Anti-Corruption, Korea has a concrete strategy and its action plan (including various laws and regulations). Respondents think these work somewhat actively but not effectively. They also think new polices and measures such as nepotism, influence peddling are needed for better anti-corruption policies.

• In Money-Laundering, Korea has specific laws and regulations based on International recommendations (FATA etc.) Respondents think ML policies have positive impact in some extents but needs more punitive measures.

Thank You