Although it has been a month after the release of the Financial Action Task Force(FATF) on Money Laundering’s recommendation, Korean exchange platforms are practically not preparing any countermeasures. Not only the recommendation is not yet reflected in Korean regulation, but its requirement level is also considerably high.
Most of the exchange platforms seem to be cautious toward the issue. Only major platforms such as Bithumb and Coinone have recently established AML departments. However, it is known that these AML departments are not operating properly yet. GOPAX and Coinone are hiring professionals for these departments but only plan to hire one or two employees.
Most of the exchange platforms already have independent Fraud Detection System(FDS). However, it is likely that it would not meet the heightened requirements set by FATF. UPbit, which uses Dow Jones Watchlist and Chainalysis seems to be the only exchange platform adopting AML solutions. Kim, Jinhee, the executive in charge of Asia-Pacific AML/CFT of MUFG(Mitsubishi UFJ Financial Group) said, “AML measurements in Korean exchange platforms are absent. They should be strengthened, almost at the level of the banking industry.”
Personnel from UPbit said, “The preparation will be possible after the amendments of ‘Act on Reporting and Using Specific Financial Transaction Information (hereinafter, Act on SFTI) passes in the National Assembly.” Many exchange platforms, including Bithumb, would pursue a similar strategy.
However, the amendments of Act on SFTI proposed by Korea’s governing party is not progressing in the State Affairs Committee of the National Assembly. If the Act on SFTI is amended, the exchange platforms would be subjected to new regulations regarding AML. They would be required to establish the AML system at the level of the financial institution, in accordance with FATF’s recent recommendation. Many exchange platforms believe it would be almost impossible to meet the new requirements. It is expected to cost up to billions of KRW, from establishing the system to hiring new employments.
Moreover, the amendments suggest that the exchange platforms need to be reported and registered to the Korean Financial Service Commission (hereinafter, FSC). The industry regards investment in AML system as a huge risk for a blurry future. The only upside is that they bought some time due to the National Assembly’s indifference on passing the amendments. In addition, the amendments may be further delayed as the major agenda of the National Assembly would soon become the 21st legislative election planned in April 2020.
The banks providing ‘ID-verified virtual accounts’ also believe that the exchange platforms should provide heightened AML measurements. Officials of Shinhan Bank, which is in a contract with KORBIT said, “We are asking KORBIT to satisfy the AML requirements to protect our customers. The contract will continue only with when the required levels are met”
Personnel from NH Bank which is in association with Bithumb and Coinone said, “As the FATF recommendation is not yet reflected on the Act on SFTI, the banks are not providing any measures yet. But the exchange platforms had better prepare in advance.”
What to Prepare for Exchange Platforms
FATF has decided to impose AML duties to the Virtual Assets Service Providers (VASP) at the level of financial institutions, on the general meeting last June. Steven Mnuchin, the U.S. Secretary of the Treasury said, “FATF will not allow the VASPs such as cryptocurrency exchange platforms to hide in the blind spot of the law.”
The purpose of FATF is to prevent money laundering and financing of terrorism. FATF impose different duties to the financial institutions. Basically, any transactions suspected to be an illegal fund transaction (STR) or transaction that exceeds 10 million KRW per day (CTR) must all be reported to the Financial Intelligence Unit(FIU). In addition, the customer due diligence (CDD) should also be conducted, which means names, national identification numbers, addresses, and contacts of customers must be verified.
These requirements are even hard to meet even for the financial institutions. In January 2017, NH Bank New York branch has been imposed of 11 million USD for violating AML standards of the New York State Department of Financial Services. In Korea June 2018, Kwangju Bank has been imposed of 6 million KRW as a penalty and 3 months of pay-cut to the relevant employee for not verifying the ownership of a corporate customer.
Kim, Byungchul (2019. 07. 17.) 국내 거래소들, FATF 권고안 이후 ‘속수무책’ 관망중
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