Republic of Korea

International Narcotics Control Strategy Report - 2003

Released by the Bureau for International Narcotics and Law Enforcement Affairs
March 1, 2004

 

Korea, Republic of

Part I: Drug and Chemical Control

I. Summary

Narcotics trafficking or production is not a major problem in South Korea. In 2003 Methamphetamine seizures decreased by 51 percent. Usage of illicit drugs has also decreased by approximately 30 percent (based upon totals from January through October figures in 2003). Ecstasy (MDMA) is abused, especially in metropolitan areas. Because of concern at the spread of SARS (Severe Acute Respiratory Symptoms), border security increased and the number of travelers decreased. This appears to have affected the flow of narcotics. The Republic of Korea (ROK) is a party to the 1988 UN Drug Convention.

II. Status of Country

In the past, the ROK has had a relatively moderate drug problem in comparison to other countries of similar population and landmass. But this situation is perhaps changing. Various club drugs, especially MDMA, Yaba (Thai methamphetamine) and LSD are on the rise. MDMA seizures alone grew 600 percent during the first ten months of 2003. Importation of heroin and cocaine for local consumption seems to have decreased, based on seizures. The overall drug user population (identified by arrests for usage) in Korea is reportedly stable from last year's levels. With 47 million people, Korea reported slightly over 10,000 drug arrests for 2002. But drug arrests for January through October of 2003 have only reached a little more than 7,000.

 

III. Country Actions Against Drugs in 2003

Policy Initiatives. During 2001 the Supreme Prosecutors Office, in an agreement with the Korea Customs Service, created Korea's very first national narcotics task force, the Joint Narcotics Intelligence Task Force (JNITF). Originally an intelligence-gathering unit, the JNITF is now an operational enforcement unit capable of conducting its own follow-up investigations using the intelligence that it gathers and is recognized as a more long-term, advanced narcotic investigation unit. The Korea Customs Service also continues its own initiatives towards combating narcotics, not only in support of the aforementioned JNITF, but also through its airport and seaport narcotics units.

Law Enforcement Efforts. The Korean National Police Administration has upgraded its narcotic enforcement efforts by the creation of 68 drug investigation units. In 2003, these units were restructured and the number of police officers increased from 221 to 500. The total amount of drugs seized upon entry at Korea's largest international airport has decreased, but these results may have been affected by SARS, as border security increased and the number of travelers decreased. A total of 110 kilograms of drugs were seized, 58.6 kilograms of which were methamphetamine. Seizures of MDMA increased sharply within Korea with 2,575 tablets seized during 2003, up 600 percent over 2002. Use of Yaba, also an Amphetamine Type Stimulant (ATS), is on the increase with 387 tablets seized in 2003 as compared with none in 2002. LSD shows a similar pattern with 900 tablets seized in 2003 with again none seized in 2002.

Corruption. Although isolated reports of official corruption appear in the ROK's press, there is no evidence that official corruption influenced narcotics law enforcement in Korea. As a matter of policy and practice, the ROK does not encourage or facilitate the illicit production or distribution of drugs or the laundering of proceeds from illegal drug transactions.

Agreements and Treaties. In February 2003, the ROK signed a mutual legal assistance treaty (MLAT) and an extradition treaty with Uzbekistan. Both documents are pending ratification. In September the ROK government signed both an MLAT and an extradition treaty with Vietnam; again, both documents are pending ratification. Additionally, MLATs were signed with the Philippines (June 2003) and Thailand (August 2003). An extradition treaty and MLAT with the U.S. is also in force. Korea is a party to the 1988 UN Drug Convention. Korea also has signed, but has not yet ratified, the UN Convention against Transnational Organized Crime.

Illicit Cultivation and Production. While methamphetamine was previously produced in the ROK, evidence suggests no significant current production. In 2003, the Korean National Anti-Drug Program targeted domestically produced marijuana and poppy. Between January and October, 55,311 poppy plants (almost a 300 percent increase) and 5,599 marijuana plants were seized (a marked decrease by 62 percent). Marijuana is cultivated legally as hemp in Korea, and is used for fabrics and fertilizer. It is grown in the northeast and southwest regions of the ROK and a portion is diverted for illegal use.

Drug Flow/Transit. Methamphetamine, mostly from China, but also reportedly from the Philippines, North Korea, and Thailand, is used in the ROK and also transits the country. Cocaine and heroin are also used in very small amounts in Korea and have been known to transit to other areas. Transiting methamphetamine is often destined for Japan, Australia and the U.S. Southeast and Southwest Asian heroin have been seized in Korea, but heroin abuse remains a minor problem and tends to be associated with foreigners living in the ROK. Cocaine seems to be used as a kind of club drug in Korea to substitute for methamphetamine. Yaba has also been discovered entering the country. While locally grown marijuana is available, South African marijuana continues to dominate the domestic market and is found transiting the ROK bound for Japan.

Domestic Programs (Demand Reduction). The Supreme Prosecutors Office, as well as a few non-government organizations, have focused on the issue of drug use, reduction and rehabilitation. The Supreme Prosecutors Office continues to actively support a train-the-trainer program to reduce drug demand. The office sends knowledgeable representatives to instruct educators and teachers on the perils of drug usage, how to identify drugs, and how to recognize and counsel students suspected of using drugs. Teachers then instruct students about drugs. Additionally, more local communities are becoming active with regional DRUG FREE committees enhancing the work of the Prosecutors Office and that of the National Anti-Drug Association, a civilian foundation, which is continuing a counternarcotics campaign through television and newspaper ads.

 

IV. U.S. Policy Initiatives and Programs

U.S. Policy Initiatives. DEA and USCS continue to work very closely with all Korean narcotic law enforcement authorities. Both agencies have given support to Korean investigations through exchange of intelligence and hands-on-guidance in actual cases.

Bilateral Cooperation. Trafficking information and trends are freely provided to the USG, while investigations, which could always be enhanced through bilateral cooperation, are still for the most part done unilaterally. Competition to maintain on-going investigations (and not have them taken over by a competing agency), along with the unwillingness to share credit for a successful case often leads to investigations which are not as effective as could be achieved through cooperation.

The Road Ahead. U.S. agencies plan to work closely with all Korean narcotics law enforcement and intelligence officials in an effort to offer hands-on training, as well as investigative assistance with precursor chemical and narcotic related investigations.

Part II: Money Laundering and Financial Crimes

 

 

South Korea is not considered an attractive location for international financial crimes or terrorist financing, partly because of existing foreign exchange controls. However, such activities do exist. As law enforcement authorities have gained more expertise investigating money laundering and financial crimes, they have also become more cognizant of the problem. In general, the still fairly strict foreign exchange controls in place make it difficult for drug-related or terrorism-related money laundering to flourish. Most money laundering appears to be associated with domestic criminal activity or corruption and official bribery. Still, criminal groups based in South Korea maintain international associations with others involved in human and contraband smuggling and related organized crime. On the whole, the South Korean government has been a willing partner in the fight against financial crime, and has pursued international agreements toward that end.

Money laundering related to narcotics trafficking has been criminalized since 1995, and financial institutions have been required to report transactions known to be connected to narcotics trafficking to the Public Prosecutor's Office since 1997. All financial transactions using anonymous, fictitious, and nominee names have been banned since the 1997 enactment of the Real Name Financial Transaction and Guarantee of Secrecy Act. The Act also requires that, apart from judicial requests for information, persons engaged in financial institutions not provide or reveal to others any information or data on the contents of financial transactions without receiving a written request or consent from the parties involved. However, secrecy laws do not apply when such information must be provided for submission to a court or as a result of a warrant issued by the judiciary.

In a move designed to broaden its anti-money laundering regime, the Republic of Korea (ROK) also criminalized the laundering of the proceeds from 38 additional offenses, including economic crimes, bribery, organized crime, and illegal capital flight, through the Proceeds of Crime Act (POCA), enacted in September 2001. The POCA provides for imprisonment and/or a fine for anyone receiving, disguising, or disposing of criminal funds. The legislation also provides for confiscation and forfeiture of illegal proceeds.

South Korea still lacks specific legislation on terrorism financing. In 2002, the National Intelligence Service (NIS) submitted an antiterrorism bill to the National Assembly, but it has not yet been passed. Many politicians and nongovernmental organizations (NGOs), recalling past civil rights abuses in Korea by the government, oppose the pending antiterrorism legislation because of fears about possible misuse by the National Intelligence Service. The proposed legislation is crafted to allow the Republic of Korea Government (ROKG) additional latitude in fighting terrorism, though general financial crimes and money laundering have already been criminalized in previously enacted laws.

The pending antiterrorism bill, if passed, would permit the ROKG to seize legitimate businesses that support terrorist activity. Currently, under the special act against illicit drug trafficking and other related laws, legitimate businesses can be seized if they are used to launder drug money, but businesses supporting terrorist activity cannot be seized unless other crimes are committed. At this time, there are no known charitable or nonprofit entities operating in Korea that are used as conduits for the financing of terrorism.

Through its Korean Financial Investigative Unit (KoFIU, authorized by the Ministry of Finance and Economy) the ROK circulated to its financial institutions the list of individuals and entities that have been included in the UN 1267 Sanctions Committee's consolidated list as being linked to Usama Bin Ladin or members of the al-Qaida organization or the Taliban, or that the U.S. Government (USG) or the European Union have designated under relevant authorities. The ROK implemented regulations on October 9, 2001, to freeze financial assets of Taliban-related authorities designated by the UN Security Council. The government then revised the regulations, agreeing to list immediately all U.S. Government-requested terrorist designations under Executive Order 13224 of December 12, 2002. Due in part to Korea's remaining restrictive foreign exchange laws, which persist despite some recent liberalization, and which render the country unattractive as an offshore financing center, no listed terrorists are known to be maintaining financial accounts in Korea at this time. Korean banks have not identified any terrorist assets. There have been no cases of terrorism financing identified since January 1, 2002.

ROK authorities are just beginning to assess whether the hawala system is an area of concern. Currently, gamblers who bet abroad often use alternative remittance and payment systems; however, government authorities have already criminalized those activities through the Foreign Exchange Regulation Act and other laws. Hawala-type vendors do exist in South Korea and operate primarily among the country's small population of approximately 30,000 foreigners from the Middle East.

The Financial Transactions Reports Act (FTRA), passed in September 2001, requires financial institutions to report suspicious transactions to a financial intelligence unit (FIU) within the Ministry of Finance and Economy. In November 2001 the Korean Cabinet issued regulations implementing the newly enacted FTRA, and officially launched the Korea Financial Intelligence Unit (KoFIU). KoFIU is composed of 60 experts from various agencies, including the Ministry of Finance and Economy, the Justice Ministry, the Financial Supervisory Commission, the Bank of Korea, the National Tax Service, the National Police Agency, and the Korea Customs Service. KoFIU analyzes suspicious transaction reports (STRs) and forwards information deemed to require further investigation to domestic law enforcement and the Public Prosecutor's office. Currently, financial institutions must report transactions of over 50 million won (about $42,000) that are suspected of being tied to criminal proceeds or to tax evasion, and they may report transactions in lesser amounts if there are "reasonable" grounds for doing so. Efforts are being made to lower the reporting threshold to 20 million won for suspicious transactions for 2004. Improper disclosure of financial reports is punishable by up to five years imprisonment and a fine of up to 30 million won (about $25,000). In addition, KoFIU supervises and inspects the implementation of internal reporting systems established by financial institutions.

Since its inception in November 2001, KoFIU has received a total of 1,713 suspicious transaction reports (STRs) from financial institutions. It has completed analysis of 1,276 of them, and provided 413 reports to law enforcement agencies as of November 30, 2003, according to KoFIU. Results were disseminated to law enforcement agencies such as the Public Prosecutor's Office (PPO), National Police Agency (NPA), National Tax Service (NTS), Korea Customs Service (KCS), and the Financial Supervisory Commission (FSC). In terms of large cases, the managing directors of the SK Group, a conglomerate, were prosecuted for laundering 10 billion won ($8.4 million), in checks and securities, in November 2003.

Money laundering controls are applied to nonbanking financial institutions, such as exchange houses, stock brokerages, casinos, insurance companies, merchant banks, mutual savings, finance companies, credit unions, credit cooperatives, trust companies, securities companies, insurance companies, credit insurance corporations, and exchange houses. Intermediaries such as lawyers, accountants, or broker/dealers are not covered. Any traveler carrying more than $10,000 or the equivalent in other foreign currency is required to report the currency to the Korea Customs Service.

The ROK actively cooperates with the United States and other countries to trace and seize assets. The Anti-Public Corruption Forfeiture Act of 1994 provides for the forfeiture of the proceeds of assets derived from corruption. In November 2001, the ROK established a system for identifying, tracing, freezing, seizing, and forfeiting narcotics-related and/or other assets of serious crimes. Under the system, KoFIU is responsible for analyzing and providing information on STRs that require further investigation. The Bank Account Tracing Team under the Narcotics Investigation department of the Seoul District Prosecutor's Office (established in April 2002) is responsible for tracing and seizing drug-related assets. The Seoul District Prosecutor's Office seized $1.6 million worth of assets related to seven drug trades in 2003, representing a big increase from 2002. The prosecutor's office seized $109,000 of assets related to illegal foreign exchange transactions in 2002, of which $53,000 was related to drug trafficking. The ROKG plans to establish six additional new bank account tracking teams in 2004 to serve out of the District Prosecutor's offices in the metropolitan cities of Busan, Daegu, Kwangju, Incheon, Daejon and Ulsan, to expand its reach.

The ROK continues to address the problem of the transportation of counterfeit international currency. In the first ten months of 2003, the Central Bank reported that local banks uncovered 136 cases of counterfeit foreign currency - representing an increase of 25 percent over the same period of 2002. Among these counterfeit cases, 89 percent involved U.S. dollars, an increase of about one percent from the previous year.

The ROK is a party to the 1988 UN Drug Convention and, in December 2000, signed, but has not yet ratified, the UN Convention against Transnational Organized Crime. In October 2001, the ROK signed the UN International Convention for Suppression of the Financing of Terrorism, but has not yet ratified it. The ROK also signed in Dec. 2003, but has not ratified, the UN Convention Against Corruption, which is not yet in force. The ROK is an active member of the Asia/Pacific Group on Money Laundering, and in 2002 KoFIU assumed the position of co-chair. The ROK also became a member of the Egmont Group in 2002 and applied for membership in the Financial Action Task Force. An extradition treaty between the United States and the ROK entered into force in December 1999. The United States and the ROK cooperate in judicial matters under a Mutual Legal Assistance Treaty, which entered into force in 1997.

In addition, the Korean FIU continues to actively pursue information-sharing agreements with a number of countries. KoFIU signed memoranda of understanding with Belgium (March 2002), Poland (October 2002), the United Kingdom (October 2002), Brazil (February 2003), Australia (May 2003), and Colombia and Venezuela (November 2003) to facilitate the exchange of information on money laundering. KoFIU is negotiating similar MOUs with the United States, Japan, and Canada. These agreements are expected to enhance the government's asset tracing and seizure abilities.

The passage of the terrorism financing bill, if coupled with existing recent measures, would provide the ROKG with powerful tools to combat money laundering. Korea should criminalize the financing and support of terrorism and should continue to move forward to adopt and implement its pending legislation. The ROK should extend its anti-money laundering regime to financial intermediaries. The ROK should continue its policy of active participation in international anti-money laundering efforts, both bilaterally and in multilateral fora. Spurred by enhanced local and international concern, South Korean law enforcement officials have begun to fully grasp the negative potential impact such activity has in their country and to take steps to combat its growth. The ROK should also accede to the UN International Convention for the Suppression of Terrorism.