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Korean banks still vulnerable to money laundering


By Park Jae-hyuk

Korean banks lag far behind foreign commercial banks here in their efforts to prevent money laundering, despite the global trend of tightening regulatory standards.

Amid growing concerns over their carelessness toward regulatory compliance, the local lenders have blamed the nation's financial authorities for their sluggish investment in workers and anti-money laundering systems.

According to data from the Korea Financial Intelligence Unit given to Rep. Hong Sung-kook of the ruling Democratic Party of Korea (DPK), the number of employees involved in anti-money laundering at Shinhan, KB Kookmin, Hana, Woori and NongHyup banks was 67 on average as of September, nearly half the average of employees at Citibank Korea and Standard Chartered (SC) Bank Korea.

Citibank and SC Bank have hired 138 and 104 workers here for the task, respectively.

The gap is considered quite significant, given that the number of employees at the five Korean banks was 15,403 on average and the two foreign banks had 3,878 workers on average as of June.

In addition, Korean banks invested 3.62 billion won ($3.2 million) per year in anti-money laundering operations over the past three years on average, far below the annual average of 6.05 billion won spent by the two foreign banks. While Citibank spent 7.6 billion won a year combating money laundering, KB and NongHyup spent 2.4 billion won each.

Critics point out such poor anti-money laundering management can have a negative impact on the financial soundness of banks, eventually leading to damages to customers.

In April, the Industrial Bank of Korea's New York branch was slapped with an $86 million fine by the U.S. Attorney's Office and the New York State Department of Financial Services for its compliance failures that allowed nearly $1 billion to be illegally transferred to Iran in violation of sanctions. NongHyup's New York branch was also fined $11 million in 2017 for violating anti-money laundering laws.

"Non-financial sectors have also been asked to make efforts to combat this crime globally, but in Korea, financial institutions still remain careless about this," Rep. Hong said.

Separate data from the Financial Services Commission given to Rep. Song Jae-ho of the DPK showed the number of financial transactions via banks suspected of money laundering and terrorism financing, surpassed $17.3 million during the past three years.

In response, Korean banks claimed it was too early to compare them with foreign banks.

"Having faced various sanctions over their violations of anti-money laundering laws since 2010, foreign banks have increased their workforce and investments to fight the crime," a local commercial bank official said on condition of anonymity.

He emphasized it has just been two years since the Financial Supervisory Service formed a department in charge of anti-money laundering.

Domestic banks said they will gradually increase their investments in appropriate systems.

Shinhan announced in September that it had completed upgrading its anti-money laundering systems using artificial intelligence and robotics process automation.

Woori introduced the U.S. software company SAS' new system to its nine foreign branches in Singapore, Sydney, Tokyo, London, Hong Kong, Dubai, Bahrain, Dhaka and India. This system has also been used by NongHyup Bank's overseas branches.

KB has used a chatbot it developed since July, while Hana completed upgrading its risk assessment model last year.



By Park Jae-hyuk

Korean banks lag far behind foreign commercial banks here in their efforts to prevent money laundering, despite the global trend of tightening regulatory standards.

Amid growing concerns over their carelessness toward regulatory compliance, the local lenders have blamed the nation's financial authorities for their sluggish investment in workers and anti-money laundering systems.

According to data from the Korea Financial Intelligence Unit given to Rep. Hong Sung-kook of the ruling Democratic Party of Korea (DPK), the number of employees involved in anti-money laundering at Shinhan, KB Kookmin, Hana, Woori and NongHyup banks was 67 on average as of September, nearly half the average of employees at Citibank Korea and Standard Chartered (SC) Bank Korea.

Citibank and SC Bank have hired 138 and 104 workers here for the task, respectively.

The gap is considered quite significant, given that the number of employees at the five Korean banks was 15,403 on average and the two foreign banks had 3,878 workers on average as of June.

In addition, Korean banks invested 3.62 billion won ($3.2 million) per year in anti-money laundering operations over the past three years on average, far below the annual average of 6.05 billion won spent by the two foreign banks. While Citibank spent 7.6 billion won a year combating money laundering, KB and NongHyup spent 2.4 billion won each.

Critics point out such poor anti-money laundering management can have a negative impact on the financial soundness of banks, eventually leading to damages to customers.

In April, the Industrial Bank of Korea's New York branch was slapped with an $86 million fine by the U.S. Attorney's Office and the New York State Department of Financial Services for its compliance failures that allowed nearly $1 billion to be illegally transferred to Iran in violation of sanctions. NongHyup's New York branch was also fined $11 million in 2017 for violating anti-money laundering laws.

"Non-financial sectors have also been asked to make efforts to combat this crime globally, but in Korea, financial institutions still remain careless about this," Rep. Hong said.

Separate data from the Financial Services Commission given to Rep. Song Jae-ho of the DPK showed the number of financial transactions via banks suspected of money laundering and terrorism financing, surpassed $17.3 million during the past three years.

In response, Korean banks claimed it was too early to compare them with foreign banks.

"Having faced various sanctions over their violations of anti-money laundering laws since 2010, foreign banks have increased their workforce and investments to fight the crime," a local commercial bank official said on condition of anonymity.

He emphasized it has just been two years since the Financial Supervisory Service formed a department in charge of anti-money laundering.

Domestic banks said they will gradually increase their investments in appropriate systems.

Shinhan announced in September that it had completed upgrading its anti-money laundering systems using artificial intelligence and robotics process automation.

Woori introduced the U.S. software company SAS' new system to its nine foreign branches in Singapore, Sydney, Tokyo, London, Hong Kong, Dubai, Bahrain, Dhaka and India. This system has also been used by NongHyup Bank's overseas branches.

KB has used a chatbot it developed since July, while Hana completed upgrading its risk assessment model last year.


Park Jae-hyuk pjh@koreatimes.co.kr

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