The amendment to the Act on the Reporting and Use of Certain Financial Transaction Information (the “Act”), announced on March 21, 2012, became effective as of March 22, 2013 (the amended Article 7(1) of the Act became effective as of the above announcement date). The key amended provisions of the Act are as follows.
- More Detailed Punitive Measures Against Financial Companies
To improve effectiveness in preventing money laundering by financial companies, the provisions of the Act on punitive measures against financial companies and their employees, which prior to its amendment had merely stated “demand for disciplinary action and other necessary measures,” specifically prescribe the potential punitive measures that may be taken against financial companies and their employees as a recommendation of dismissal, suspension of work duties of up to 6 months, or a warning, and if financial companies do not comply with a corrective order or receive institutional warnings on 3 or more occasions, the Commissioner of the Korea Financial Intelligence Unit (KFIU) may request the relevant authority with the power to supervise the business of the relevant financial companies to issue an order for suspension of business, in whole or in part, of up to 6 months (Article 11(2), (3) and (4) of the Act).
- Establishment of Grounds for Supervisory/Investigative Authorities to Require Disclosure of Certain Financial Transaction Information
The Act contains a new provision which allows supervisory/investigative authorities relating to the prevention of money laundering by financial companies, etc. to require the head of financial companies to disclose financial transaction information to the minimum extent necessary for supervisory or investigative work (Article 11(7) of the Act).
Article 7(1) of the Act, which went into effect as of March 21, 2012, provides as follows.
- Disclosure of Certain Financial Transaction Information Relating to Tax Investigation on Suspected Tax Law Violations and Right to Demand Disclosure
The grounds for disclosure of certain financial transaction information by the Commissioner of the KFIU, which were previously limited to “tax law violation cases,” have been expanded to the extent deemed necessary for “tax investigation work to confirm suspected tax law violations pursuant to Article 3 of the Tax Crimes Punishment Act” (Article 7(1) of the Act). As a result, the scope of the right to demand disclosure of information by the Commissioner of the National Tax Service (NTS) from the Commissioner of the KFIU has been expanded to the same extent (Article 7(4) of the Act).
Furthermore, a proposed amendment to the Act has been presented for deliberations to the Proposed Legislation Review Subcommittee of the State Affairs Committee of the National Assembly. The proposed amendment further expands the scope of permitted utilization of information from the KFIU, which, through the recent amendment, was expanded to “tax investigation work to confirm suspected tax law violations,” to “national tax assessment and collection work,” and also grants the Commissioner of the KFIU separate authority to approve the use of data from large cash transaction reports (“CTR”) so that CTR may be utilized in relation to national tax assessment and collection work.
Due to the amendment and the proposed amendment to the Act mentioned above, it seems that the trend is toward strengthened authority of the NTS and other governmental agencies to require disclosure of information for their activities to eradicate money laundering rather than the protection of individuals’ financial transaction information and self-regulatory operation of the KFIU.
Therefore, not only must financial institutions exercise caution in performing their supervisory and review duties to prevent money laundering, but corporate and individual clients of financial institutions also need to be aware that the confidentiality of financial transaction information may be restricted in part due to such trend toward transparency of financial transaction information.