Money Laundering

The practice of concealing the origin of criminal proceeds to disguise them as legitimate assets, along with the international and domestic regulatory frameworks that counter it

Money Laundering

Overview

Money laundering (Korean: 돈세탁, jageum setak) refers to a series of acts that conceal the origin of criminal proceeds obtained through illegal activities such as drug trafficking, tax evasion, fraud, embezzlement, and organized crime, disguising them as assets acquired legitimately in order to evade the tracing of funds. Going beyond merely hiding cash, it undermines trust in the financial system as a whole, provides a basis for criminal organizations to reinvest, and is closely tied to terrorist financing; consequently, most countries regulate it as a serious crime. The international community, centered on the FATF (Financial Action Task Force), maintains anti-money laundering (AML) and counter-terrorist financing (CFT) standards and presses for implementation through mutual evaluations.

Key Details

Concept and History

The term "money laundering" is widely said to originate from 1920s Chicago, where organized crime groups operated automatic laundries and mixed illegal income with legitimate sales to obscure the flow of funds. The institutional starting point was the U.S. war on drugs in the 1980s and the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (Vienna Convention); international standards took shape with the founding of the FATF in 1989 under the leadership of the Group of Seven (G7). Subsequently, with the conclusion of the 2000 UN Convention against Transnational Organized Crime (Palermo Convention) and the 2003 UN Convention against Corruption, the scope of regulation expanded to organized crime, corruption, and terrorism.

The Three Stages of Money Laundering

1. Placement: The stage of introducing criminal proceeds into the financial system, using methods such as depositing cash in small amounts across multiple accounts (smurfing), currency exchange, purchases of precious metals or real estate, and buying casino chips.

2. Layering: The stage of severing the origin and traceability of funds through repeated complex transactions, employing multiple transfers between offshore accounts, transactions between paper companies, trade-based money laundering (TBML) using falsely declared import/export prices, and conversion into virtual assets.

3. Integration: The stage of investing the laundered funds in real estate, corporate equity, artworks, financial products, and the like, thereby recovering and reinvesting them as legitimate assets.

Major Techniques

Representative techniques include smurfing (depositing small amounts across many accounts), paper companies established only on paper, traditional alternative remittance networks (hawala), name lending and borrowed-name accounts, transactions in high-value assets such as real estate, artworks, and luxury watches, networks of bank accounts opened under others' names (daepo tongjang) used by voice phishing and illegal gambling sites, and anonymity-enhancing technologies such as virtual asset mixers, tumblers, and Donut. Recently, document forgery using generative AI and non-face-to-face account opening via deepfakes have emerged as new threats.

International Regulatory Framework

The FATF standardizes customer due diligence (CDD), suspicious transaction reporting (STR), identification of ultimate beneficial owners (UBO), and regulation of virtual asset service providers through its 40 Recommendations, and presses for implementation by conducting mutual evaluations of member states and publishing lists of high-risk jurisdictions (blacklist and greylist). The Basel Committee sets out principles for banks' customer due diligence, and the EU has built an integrated supervisory system through its Anti-Money Laundering Directives (AMLD 4, 5, and 6) and the AML regulation package adopted in 2024. The UN conventions and national criminal codes punish the concealment of criminal proceeds itself as an independent crime, while also operating confiscation and asset recovery systems.

Regulation in Korea

In Korea, the Korea Financial Intelligence Unit (KoFIU) oversees the AML system, centering on the Act on Reporting and Using Specified Financial Transaction Information (Special Financial Information Act). Financial companies and certain business sectors are obligated to conduct customer due diligence (CDD), enhanced due diligence (EDD), identification of politically exposed persons (PEPs), suspicious transaction reporting (STR), and currency transaction reporting (CTR) for large cash transactions. With the 2021 amendment to the Special Financial Information Act, virtual asset service providers became subject to a reporting obligation and to the travel rule (providing wallet information for transfers). The concealment of criminal proceeds is punishable under the Act on Regulation and Punishment of Criminal Proceeds Concealment by imprisonment for up to five years or a fine of up to 30 million won, and individual laws such as the Act on Special Cases concerning the Prevention of Illegal Trafficking in Narcotics provide aggravated punishment provisions.

AML/KYC Practice

Financial companies verify customers' identity, purpose of transactions, and source of funds, identify ultimate beneficial owners, and perform screening against lists of sanctioned persons. They then detect anomalous signs through transaction monitoring systems, submit suspicious transaction reports, and share the reported information with investigative authorities. In terms of internal controls, a dedicated anti-money laundering organization, independent audits, and employee training are required.

Latest Trends

The key changes in 2024–2025 can be summarized as virtual assets, beneficial ownership transparency, and responses to sanctions evasion. The FATF is strengthening its review of implementation of the virtual asset travel rule and is conducting its fifth round of mutual evaluations, and countries have rushed to enact legislation raising supervision of virtual asset service providers to the level applied to banks. Following the enforcement of the Act on the Protection of Virtual Asset Users in July 2024, Korea has continued discussions on second-stage legislation covering exchange governance and major shareholder eligibility, and is pursuing an expansion of the supervisory scope under the Special Financial Information Act and more sophisticated monitoring of virtual asset transactions. The EU adopted a regulation establishing the Anti-Money Laundering Authority (AMLA) in 2024 and began building its supervisory system in 2025, while in the United States legal and policy debates continued over the beneficial ownership reporting regime under the Corporate Transparency Act (CTA). As trade-based money laundering to evade sanctions against Russia, shadow fleets, and international laundering networks for illegal gambling and voice phishing funds are cited as major threats, information sharing among sanctions, AML, and tax authorities is expanding. Technologically, AI-based abnormal transaction detection (FDS) and network analysis are reducing false positives, while liveness verification and document forgery detection to counter deepfakes and synthetic identity documents are becoming standardized.