[Editorial] War on shadow economy

The shadow economy, or the sum of economic activities that are not declared for tax purposes and are usually carried out in exchange for cash, is estimated to be equivalent to 20-25 percent of the nation’s gross domestic product. President Park Geun-hye’s administration, which has declared a war on the shadow economy, is aiming at reducing its size to 10-15 percent of GDP.

In a report to President Park earlier in the week, the Ministry of Strategy and Finance said the efforts to bring the shadowy economic activities to light would generate 28 trillion won in additional tax revenue during the next five years. Placed at the forefront of the war will be the National Tax Service and the Korea Customs Service, which demand they be allowed to make use of the Financial Intelligence Unit’s database in tracking down those suspected of evading taxes or customs duties.

It is vital for the two agencies to get freer access to the data resources the Financial Intelligence Unit has accumulated since its foundation in November 2001. The resources include information on financial transactions, each of them involving more than 20 million won in cash, and those suspected of being carried out for the purpose of money laundering.

But the agencies are denied access to the database, with the use of the information on financial transactions permitted only for the purpose of criminal investigations and financial supervision. As such, it is necessary to revise the law governing the Financial Intelligence Unit if the agencies are to be permitted to use its resources for an effective attack on suspicious financial transactions.

Another law that needs to be revised is the one banning the use of bogus or borrowed names in financial transactions. Financial institutions are required to verify the use of real names when they provide services for financial transactions. But no one is culpable for providing a false name for a financial institution. The law, which was made loose to allay the fears of wealthy people at the time when it was written, now needs to be tightened to prevent false names from being provided and keep financial transactions from being obscure and untaxed.

This is not to demand that transparency be promoted in financial transactions even at the expense of privacy. On the contrary, privacy must be strictly protected for those who engage in lawful financial translations.