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Image produced by DALL·E As global anti-money laundering (AML) regulations are strengthened, the personal responsibility of corporate executives is increasing. In particular, the risks for domestic companies are increasing due to the recent strengthening of sanctions against Russia and China by the United States and Europe.
Money laundering comes with astronomical fines
Money laundering is the act of hiding the source of illegal funds and disguising them as legitimate. It is an essential process for criminals to legally retain and use the proceeds of crime. Therefore, the core of the ‘anti-money laundering system’ is that crime can be prevented simply by financial institutions that manage the flow of money monitoring strange transaction information, reporting it to government agencies, and stopping transactions with strange customers.
The anti-money laundering system received attention after the September 11, 2001 terrorist attacks. The United States strengthened anti-money laundering measures to block terrorist funds, and later actively used it as a tool for economic sanctions against Iran and North Korea. In fact, in 2017, domestic financial institutions had to pay huge fines to the New York Financial Services Commission (NYDFS) and implement various corrective measures due to the handling of North Korean and Iranian funds at their New York branch, due to the lack of an internal anti-money laundering system.
Recently, as economic sanctions, including export controls against Russia and China led by the United States and Europe, and anti-money laundering regulations on virtual asset industries have been strengthened, related enforcement cases are rapidly increasing. In 2023, global fines for anti-money laundering violations reached $6.6 billion (approximately 8.9 trillion won). Of this, the United States accounted for 77%, or $5.1 billion (6.8 trillion won). This is a 70% increase compared to the previous year. In particular, 90% of the fines were imposed on the virtual asset industry. China also imposed fines of $1.4 billion (1.9 trillion won) during the same period, mainly on payment companies.
Sanctions continue this year. In the first half of the year alone, two casinos in Las Vegas agreed to a fine of $7.5 million (KRW 10.1 billion). As such, astronomical fines are imposed for anti-money laundering violations. I think it is replacing the status of the US Foreign Corrupt Practices Act (FCPA), which was once the most strongly enforced in the world. What is noteworthy is that when these fines are imposed, the companies involved are almost always obligated to take corrective measures to strengthen their internal anti-money laundering systems.
The trend is expanding to include executives’ personal responsibilities.
Korea regulates money laundering through the ‘Act on Reporting and Use of Specific Financial Transaction Information’ (Special Financial Transactions Act). The Special Financial Services Act explicitly imposes compliance obligations such as the preparation and operation of systems, procedures and work guidelines, and training of executives and employees to effectively prevent money laundering and public threat financing through financial companies, etc. It defines the roles and responsibilities of related management and employees.
According to these Special Financial Services Act regulations and the financial supervisory authority’s inspection and sanctions practices, the person responsible for reporting is responsible as the actor for most violations of the Special Financial Services Act. Considering the industry practice of generally designating the person responsible for reporting at the executive level, caution is required as there are many cases where the CEO, who is a direct superior, bears supervisory responsibility.
Recently, the responsibilities of executives have been strengthened due to the revision of the Financial Company Governance Act. Starting in July of this year, financial companies have a legal obligation to prepare a ‘responsibility structure’, a document that distributes the responsibilities of executives such as CEOs, and to take management measures accordingly to ensure that internal control and risk management for each executive operate effectively. had to bear the burden.
General companies are no exception. The Supreme Court has already recognized the personal liability of executives, including the CEO and outside directors, for the lack of a compliance system (Supreme Court ruling 2017Da222368, pronounced on November 11, 2021, Supreme Court ruling 2021Da279327, sentenced on May 12, 2022) etc). We have entered an era where corporate executives are directly responsible for internal compliance.
In the era of dollar hegemony, there is an urgent need to reexamine internal control.
Over the past two to three years, export controls and financial sanctions against Russia and China have been strengthened. It appears that full-scale execution will now begin. Business companies may be exposed to risks in terms of economic sanctions, and financial companies may be exposed to risks in terms of anti-money laundering.
So far, our company and management have worked hard to strengthen internal compliance. However, considering the strong sanctions imposed by the United States based on dollar hegemony, it is time to check once more. This is because it could easily turn into the management’s individual responsibility.
Jiina Kim, Law Firm (Limited) Pacific Attorney I After graduating from Seoul National University’s Department of Law and completing the 35th class of the Judicial Research and Training Institute in 2006, he joined Pacific Law Firm. In 2009, he worked as a trade advisor in the Trade Legal Department of the Trade Negotiation Headquarters of the Ministry of Foreign Affairs and Trade, and also completed a trade law course at Columbia University in the United States and a specialized course in the WTO region in Beijing, China. Based on various experiences including working for multinational companies and the Ministry of Foreign Affairs, we provide advice and training on anti-corruption, anti-money laundering, and compliance system establishment for major domestic and foreign companies, as well as AML monitoring for foreign financial groups to implement deferred prosecution agreements signed with the U.S. Department of Justice (DOJ). Performed advisory services, etc.
Pacific’s Future Financial Strategy Center (Center Director: Advisor Han Jun-seong) will be launched in May 2024, and will be established by the best in the financial and IT fields, including virtual assets, electronic finance, regulatory response, and information protection, in line with the acceleration of digital innovation in the financial sector and the development of financial technology. We are building a team of experts.
