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South Korea: It’s all in the name

Soonghee LeeSung Woon Kang
An amendment to the Act on Real Name Financial Transactions and Confidentiality (ARNFTC) was passed in the plenary session in the National Assembly on May 2 2014 and will come into effect on November 29 2014. This amendment prohibits parties to a financial transaction from entering into the transaction by another's real name (borrowed name transaction) and imposes a criminal and administrative penalty and civil disadvantages on the violators. The contents of the amendment include several main points.

The amendment includes a prohibition on borrowed name transactions by parties to a financial transaction. The version of ARNFTC in force only imposes on financial institutions and others the duty to use the real name of the party to the financial transaction. Moreover, the existing ARNFTC leaves open the question of interpretation as to whether financial transactions not by a real name include borrowed name transactions. The amended ARNFTC prohibits borrowed name transactions by providing that 'it is prohibited to conduct financial transactions by using another person's real name for the purpose of hiding unlawful properties, money laundering, or providing funds for terrorism or avoidance of enforcement and any other illegal acts' and subjects offenders to a possible jail term of five years or less or fine of W50 million or less. However, the amended provisions limit the prohibited borrowed name transactions to cases where certain purposes are found, such as the hiding of unlawful properties. Moreover, although the amendment prohibits borrowed name transactions with the purpose of 'any other illegal acts', it does not provide the definition of 'illegal acts'; therefore, it is uncertain how the amendment will be applicable to transactions in practice.

Further, the amendment includes a presumption of financial assets under the account holder's possession. The Supreme Court held that non-account holders, such as contributors to the fund, may be viewed as parties to the deposit contract only in narrowly exceptional cases. The Supreme Court has also taken the position that meeting the clear intent necessary to find contributors as parties may only be recognised on an extremely strict standard. The standard is based on concrete and objective evidence with sufficient evidentiary force to overcome the evidentiary power of a demand deposit contract executed through the process of real name confirmation under the ARNFTC (see Supreme Court en banc decision 2008Da45828 rendered on March 19 2009). The amendment confirms such position of the Supreme Court and sets out a provision that financial assets held in an account under a confirmed real name are presumed to be possessed by the account holder. This is intended to cause the regulatory effect of reducing the attractiveness of borrowed name transactions.

In addition, the amendment fortified regulations and prohibitions regarding financial companies and its employees. The amendment to the ARNFTC as above is expected to render effective the regulation on borrowed name transactions in Korea in the future.

Soonghee Lee and Sung Woon Kang

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