Korea tightens real-name financial system

All types of ill-intended monetary transactions under borrowed names will be banned from later this week in South Korea as the government fills up loopholes in the law to tighten the real-name financial system, the financial regulator said Tuesday.

The revisions to the Act on Real Name Financial Transaction and Confidentiality, approved by the Cabinet earlier in the day, enable punishment of all parties involved in transactions using the names of others. Until now, only financial institutions were held responsible for confirming the identities of clients making transactions.

“The revision is aimed at preventing illegal financial transactions under borrowed names that include concealing property, money laundering and tax evasion,” the Financial Services Commission said. The amendments take effect on Saturday.

The real-name transaction system was first introduced in 1993 to root out shady and hidden financial activities and help enhance transparency.

But a series of slush fund scandals using borrowed names by politicians and business tycoons sparked public demand to revise the mechanism and stiffen penalties. Borrowed names were also being used by the rich to evade taxes by dividing the wealth into pieces and depositing them into accounts held by another individual.

Even when tax authorities discovered such activities, they were only able to levy additional taxes.

Under the revised law, those who engage in such ill-intended transactions can be imprisoned up to five years or fined 50 million won ($44,800). Those who lent their names can be also punished if they knew if it was for illegal financial activities, the FSC said.

The revisions include an assumption that the assets belong to the individual whose name is on the account, rather than the actual owner.

Banks reported a flurry of withdrawals and deposits ahead of the law revisions taking effect. Their data showed lump sum deposits decreased while money put into savings accounts increased as customers switched over to financial products with lower tax rates. Money put into savings accounts rose to 562 trillion won in October from 555 trillion won six months earlier, according to the data. (Yonhap)