NORTH KOREA
Summary

Sanctions

UN, EU and US Financial and Arms

FAFT AML Deficient

Yes

Higher Risk Areas

 

US Dept of State Money Laundering assessment

Compliance with FATF 40 + 9 Recommendations

Weakness in Government Legislation to combat Money Laundering

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.))

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

North Korea is subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdictions.

 

FATF Statement re AML Strategic Deficiencies: 24 February 2017

The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies. Further, FATF has serious concerns with the threat posed by DPRK’s illicit activities related to the proliferation of weapons of mass destruction (WMDs) and its financing.

The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies, financial institutions and those acting on their behalf. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures, and targeted financial sanctions in accordance with applicable United Nations Security Council Resolutions, to protect their financial sectors from money laundering, financing of terrorism and WMD proliferation financing (ML/FT/PF) risks emanating from the DPRK. Jurisdictions should take necessary measures to close existing branches, subsidiaries and representative offices of DPRK banks within their territories and terminate correspondent relationships with DPRK banks, where required by relevant UNSC Resolutions.

 

Compliance with FATF Recommendations

North Korea has not yet undertaken a Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards.

 

US Department of State Money Laundering assessment (INCSR)

North Korea is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

The Democratic People’s Republic of Korea (DPRK or North Korea) has a history of involvement in currency counterfeiting, drug trafficking, terrorist financing, and the laundering of related proceeds, as well as the use of deceptive financial practices in the international financial system. The DPRK regime continues to present a range of challenges for the international community through its pursuit of nuclear weapons, weapons trafficking and proliferation, and human rights abuses.

 

On June 1, 2016, the U.S. Department of the Treasury identified the DPRK as a jurisdiction of “primary money laundering concern,” pursuant to Section 311 of the USA PATRIOT Act, and issued a proposed rulemaking generally prohibiting U.S. financial institutions from establishing or maintaining correspondent accounts with DPRK financial institutions and prohibiting the use of U.S. correspondent accounts to process transactions for North Korean financial institutions. This proposed rule was finalized on November 4, 2016.

 

Furthermore, in October 2016, the FATF again expressed its serious concerns with the threats posed by DPRK’s illicit activities related to the proliferation of weapons of mass destruction (WMDs) and its financing, and urged the DPRK to immediately and meaningfully address its AML/CFT deficiencies. The FATF strengthened the public statement by aligning it with the key financial operative paragraphs of UNSCR 2270 in urging all jurisdictions to terminate correspondent accounts and close existing branches and subsidiaries of DPRK banks. The FATF reaffirmed its earlier calls on its members to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies, financial institutions, and those acting on their behalf. In addition to enhanced scrutiny, the FATF further called on its members and urged all jurisdictions to apply effective countermeasures and targeted financial sanctions in accordance with applicable UNSCRs in order to protect their financial sectors from money laundering and proliferation financing risks emanating from the DPRK.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Access to current information on the financial and other dealings of the DPRK is hampered by the extremely closed nature of its society, but it has reported on its AML framework through engagement with the international AML community.

 

KEY AML LAWS AND REGULATIONS

 

In April 2016, DPRK adopted an AML law through Decree No. 1113 of the Presidium of the Supreme People’s Assembly, replacing the previous AML law of October 2006. The new AML law covers the main elements of the money laundering offense (conversion, transfer, concealing, disguising, acquisition, possession and use of property, knowing that such property is the proceeds of an offense) and the coverage of the offense extends to any type of property, regardless of its value, that directly or indirectly represents the proceeds of crime. However, the law remains significantly deficient, and there is no evidence of an AML infrastructure in the DPRK capable of implementing the law.

 

The DPRK is not a member of a FATF-style regional body but is an observer of the APG. It has been subject to the FATF call for countermeasures since 2011.

 

AML DEFICIENCIES

 

There is little available information on the DPRK’s financial system, and it is not clear what kinds of financial institutions currently operate in the DPRK or the type of financial activities conducted. The DPRK has not been subject to a review of its AML regime based on international standards.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

The AML law nominally sets out a supervisory framework by the Financial Supervisory Bureau, which has broad responsibilities for implementation and enforcement of the AML law. However, there is no evidence the DPRK can effectively supervise its financial institutions and enforce AML practices. Moreover, although the AML law mentions effective monitoring and supervisory mechanisms, including powers to sanction financial institutions and other businesses and professions that do not comply with AML requirements, there is neither explanation for how this is achieved nor evidence of any established framework to implement sanctions.

 

The DPRK is party to a number of international conventions, including the 1988 UN Drug Convention. There is no evidence, however, that the DPRK has taken sufficient steps to properly implement provisions contained in the conventions.

 

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SANCTIONS

There are UN, EU and US sanctions currently in force against this country. These include an embargo on arms exports to and imports from North Korea. There are also restrictions against the supply (directly or indirectly) of conventional weapons and certain weapons of mass destruction, sensitive goods and technology, and technical assistance.

On 2 January 2015, the US imposed further sanctions against North Korea, blocking certain entities and persons in response to the cyber-attack against Sony Pictures Entertainment

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

12

World Governance Indicator – Control of Corruption

8

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

North Korea, one of the world's most centrally directed and least open economies, faces chronic economic problems. Industrial capital stock is nearly beyond repair as a result of years of underinvestment, shortages of spare parts, and poor maintenance. Large-scale military spending draws off resources needed for investment and civilian consumption. Industrial and power output have stagnated for years at a fraction of pre-1990 levels. Frequent weather-related crop failures aggravated chronic food shortages caused by on-going systemic problems, including a lack of arable land, collective farming practices, poor soil quality, insufficient fertilization, and persistent shortages of tractors and fuel. Large-scale international food aid deliveries have allowed the people of North Korea to escape widespread starvation since famine threatened in 1995, but the population continues to suffer from prolonged malnutrition and poor living conditions.

Since 2002, the government has allowed private "farmers' markets" to begin selling a wider range of goods. It also permitted some private farming - on an experimental basis - in an effort to boost agricultural output. In December 2009, North Korea carried out a redenomination of its currency, capping the amount of North Korean won that could be exchanged for the new notes, and limiting the exchange to a one-week window. A concurrent crackdown on markets and foreign currency use yielded severe shortages and inflation, forcing Pyongyang to ease the restrictions by February 2010. In response to the sinking of the South Korean warship Cheonan and the shelling of Yeonpyeong Island, South Korea's government cut off most aid, trade, and bilateral cooperation activities, with the exception of operations at the Kaesong Industrial Complex. In preparation for the 100th anniversary of KIM Il-sung's birthday in 2012, North Korea continued efforts to develop special economic zones with China and expressed willingness to permit construction of a trilateral gas pipeline that would carry Russian natural gas to South Korea. The North Korean government often highlights its goal of becoming a "strong and prosperous" nation and attracting foreign investment, a key factor for improving the overall standard of living. In this regard, in 2013 the regime rolled out 14 new Special Economic Zones set up for foreign investors, though the initiative remains in its infancy. Nevertheless, firm political control remains the government's overriding concern, which likely will inhibit changes to North Korea's current economic system.

 

 

 

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