Customer Due Diligence (CDD) is a regime that requires financial institutions (FIs) to identify and verify customer identification along with information, such as beneficial ownership, purpose of transactions, source of funds, to encourage financial institutions (FIs) to pay keen attention to customers so that neither financial transactions nor financial services are misused for money laundering activities.
CDD is recognized not only as a regime that facilitates FIs to provide financial services that meet customers’ demand, but also that minimizes ML risks through accurate customer identification and mitigates financial institutions’ reputational risks. From an AML perspective, CDD, through which financial institutions routinely identify and accumulate customer information, also helps FIs to figure out suspicious activities of their customers.
In case where CDD implementation is not feasible due to customers’ refusal to submit financial information, FIs should not start transactions with the customer, by rejecting a request to open an account. If business relations have already been established, FIs should then terminate any transaction with the customer.
|Real Name Identification Regime under the Real Name Financial Transactions Act
|CDD under the Financial Transaction Reports Act (introduced in January 2006)
|Name, Resident Registration No.
|Name, Resident Registration No. + Address, Contact Information, Beneficial Owner Information
|High-risk customer : Enhanced Due Diligence (EDD*)
|Name, Resident Registration No., Address, Contact Information, Beneficial Ownership + Purpose of Transaction, Source of Funds, etc.
CDD is also dubbed as “Know Your Customer Policy”, as it is a regime that requires FIs to know who are their customers precisely and prevents them from providing the service to criminals.Who is subjected to CDD
For opening of new accounts or occasional financial transactions above designated threshold, FIs should check customer information, specifically as follows:
“Opening a new account” means "entering into a contract with a financial institution to initiate financial transaction". It includes opening a new deposit or brokerage account, entering into insurance, exemptions, loan, financial guarantee, and factoring contracts, issuing certificates of deposit or cover bills, opening a new fund account, making commitments to use safe-deposit or taking charge of bills in custody and other contracts signed with financial institutions for the purpose of starting financial transaction.
Occasional transactions include receiving and sending currency without the use of an account. Remittances or deposits without a passbook, obtaining or cashing a cashier's check, purchasing or selling a traveler’s check, safeguard deposits, buying and selling prepaid cards, and wire transfers, etc. are deemed occasional transaction, for instance.
|Required Information (Article 10(4) of Enforcement Decree)
|Real name (Under Article 2(4) of Real Name Financial Transaction Act), address, contact information
|Real name, business type, address and location of the head office and business site, contact information, representative name, date of birth and nationality
|Non-profit entity or other organization
|Real name, purpose of establishment, address and location of main office, contact information, representative name, date of birth and nationality
|Foreigner or Foreign entity
|Information specified in the corresponding category of the three categories above, nationality, location of local residence or office
Financial institutions shall verity the real name and nationality of a person who holds an ultimate control or ownership (also known as beneficial owner) over clients. When clients are legal persons or organizations, i)A person who owns at least 25 percent of the issued share should be identified. ii)Where i) is not identifiable, any one of the following persons must be identified: shareholder who holds the largest portion of shares; a person who has appointed the majority of director; a person who has substantial control over the relevant legal person or organization. iii)Where i) and ii) are unidentifiable, information relevant to the representative(s) of a legal person or organization should be confirmed.
The Korea Financial Intelligence Unit (KoFIU) started implementing EDD on December 22, 2008. EDD regime requires FIs to classify customers and products by ML risk, and to further identify the purpose of financial transaction, source of funds, etc., where higher ML risks exist.
The implementation of the regime helps FIs save time and cost when proceeding with CDD for low-risk customers, as they evaluate ML risks by customer type and conduct different levels of CDD by customer group. It also facilitates their efficient ML risk management, as FIs conduct EDD for high-risk customers or high-risk transactions. In other words, ML risks are now being efficiently prevented based on a risk-based approach.Violation of CDD Obligation
For FIs that violate CDD obligation, an administrative fine of not more than KRW 30 million (USD 22,500) will be imposed, while those who violate EDD obligation will face an administrative fine not exceeding KRW 100 million (USD 75,000).