Four foreign banks ordered to tighten anti-laundering efforts

The financial regulator said on Tuesday that it has ordered four foreign banks operating in Korea to strengthen their anti-money laundering protections.

The Financial Supervisory Service (FSS) inspected some 60 local and foreign banks to check whether they are equipped with relevant safeguards.

Among them were the Seoul branches of four banks – Sumitomo Mitsui Banking Corp., Societe Generale, Bank of China and Bank of Communications, which were instructed to tighten their rules to monitor against potential money laundering.

The measures come as some foreign banks have not prepared adequately, despite mounting international efforts to prevent money laundering.

“We are expanding the investigations to foreign banks and other financial sectors. The inspection will be a wake-up call for other financial institutions which have not established an anti-money laundering system,” said an FSS official.

“The four banks are required to follow the FSS’s orders and need to report the outcome to the authorities in three months,” he said.

Japan’s Sumitomo Mitsui Banking Corp.’s Seoul branch was caught for failing to conform to standards recommended by the Financial Intelligence Unit (FIU), which are designed to detect suspicious transactions in loans and foreign exchanges.

Financial institutions are required to report any suspicious transactions to the authorities.

The regulator said that Sumitomo Mitsui Banking Corp. also failed to provide security guidelines to prevent fabrications or data breaches in cases where dubious transactions took place.

Societe Generale Seoul has not conducted a regular audit concerning money laundering and has not specified the roles of its branch manager and its responsibilities concerning money laundering.

Bank of China’s Seoul branch has also failed to set up the guidelines to detect suspicious transactions, FSS officials said.

The Bank of Communications’ office in Seoul was also found not to have sufficient regulations to detect dubious transactions.

The watchdog pointed out that it doesn’t have a computer system to guard against the risk of money laundering or even conduct an evaluation to review suspicious transactions.

In particular, as the Bank of Communications was appointed to be the yuan clearing bank in Seoul, future transactions are expected to increase here, which could be vulnerable to money laundering schemes.

The FSS investigated Seoul branches of HSBC and SC Bank in 2012 after they were imposed with fines for money laundering cases.