S. Korea to beef up regulations on virtual currency under FATF standards

A screen listing the prices of various virtual currencies in a trade center in Seoul. (Yonhap News)

Loose regulations allow loopholes for money laundering and terrorism funding

A screen listing the prices of various virtual currencies in a trade center in Seoul. (Yonhap News)

Intensified international regulations on the virtual currency market are taking increasingly clear shape. The Financial Action Task Force (FATF), an international organization for the prevention of money laundering, recently devised standards to assess whether countries are implementing global standards related to virtual currency.

The Korea Financial Intelligence Unit (KoFIU) within the South Korean Financial Services Commission (FSC) announced on Oct. 20 that it had made the decision during the FATF plenary meeting in Paris on Oct. 13 18. The meeting was attended on the South Korean side by representatives of the Office of the Prime Minister (OPM), Ministry of Foreign Affairs (MOFA), Ministry of Justice (MOJ), National Tax Service (NTS), Korea Customs Service (KCS), and Financial Supervisory Service (FSS) in addition to KoFIU. Founded in 1989 to combat money laundering and the procurement of funds for terrorist activities, FATF has 37 member countries, including the US, China, and Japan; South Korea joined in 2009.

While South Korea does not yet have concrete regulations in place to prevent money laundering through virtual currency, regulatory plans have been taking shape within the international community through the efforts of FATF and others. Money laundering is a process in which assets obtained through illegal means are converted into or disguised as lawful assets. The organization uses the official term “virtual assets” instead of “virtual currency.” In October 2018, FATF devised international standards recommending 40 measures to prevent money laundering and the procurement of funds for terrorist activity. In June 2019, it amended binding international standards for each country to observe (interpretive notes), along with non-binding guidelines (guidance) serving as a form of commentary for individual governments and stakeholders to consult during the actual implementation process.

At the plenary meeting this October, it amended its assessment methodology for determining whether individual countries are reflecting and applying international standards in their domestic laws. This signifies the development of standards for (mutual) evaluation of countries’ compliance with recommended standards going forward. Countries undergoing mutual evaluation in the future will be assessed on their implementation of recommended standards for virtual assets.

The organization also developed a draft version for guidelines on how to apply international standards when using digital identification for customer due diligence. “Customer due diligence” refers to the system used by financial and other companies to verify customer identity. While electronic methods of identity confirmation offer greater convenience, they also increase the risk of criminal abuses using falsification. FATF plans to hear opinions on its draft guidelines from the private sector and other areas over a roughly four-week period before developing an improved plan for adoption at a plenary meeting next February.

FATF intensifies sanctions against Iran, North Korea, and other uncooperative countries

The organization also adopted an official statement including sanctions against countries that have failed to comply or cooperated with international standards. As with past meetings, it applied the highest level of sanctions against North Korea, while continuing to defer imposing the highest level of sanction in the case of Iran. Sanctions are to be imposed against Iran until improvements are made by next year. Sri Lanka, Ethiopia, and Tunisia were all removed from the blacklist following improvements, while the three new countries of Mongolia, Zimbabwe, and Iceland were added.

By Park Hyun, staff reporter

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