FATF launches targeted virtual asset review, South Korea to report for first time

The Financial Action Task Force (FATF) will launch a targeted review of countries that fall short of its international standards on virtual assets, and member states that have never been formally assessed on the virtual asset standard will also have to report their implementation. South Korea's Financial Intelligence Unit (FIU) said on Nov. 2 that the country will be among those reviewed.

The FATF made the decision at a plenary held Oct. 28-30 at OECD headquarters in Paris, the first chaired by its president, Giles Thomson of the United Kingdom. Delegates from across the FATF's Global Network of more than 200 jurisdictions, along with observers, took part. South Korea sent a delegation from five institutions, including the FIU, the Ministry of Justice, the Ministry of Foreign Affairs, the Financial Supervisory Service (FSS) and the Korea Institute of Finance, led by FIU Commissioner Lee Hyung-ju.

Review targets countries with large virtual asset sectors

In its plenary outcomes statement released Oct. 30, the FATF said criminal networks are increasingly abusing virtual assets for fraud, scams, sanctions evasion, money laundering, terrorist financing and proliferation financing (funding for weapons of mass destruction), and that it would launch a new targeted review and accelerated follow-up processes. The review will be based on objective criteria and will focus on jurisdictions with materially important virtual asset sectors on the basis of their assessment status. It follows the FATF Ministerial Declaration of April.

According to the FIU, the review is grounded in FATF Recommendation 15. The recommendation imposes anti-money laundering obligations on virtual asset service providers and includes the "travel rule," which requires sender and recipient information to accompany virtual asset transfers. The FATF will focus its analysis on countries with large virtual asset sectors where shortcomings in implementing the standard have been identified. Member states that were not formally assessed in the fourth round of mutual evaluations on laws adopted under Recommendation 15 and how they work in practice will also have to report their implementation.

South Korea's first virtual asset report card

South Korea was not assessed on Recommendation 15 (the virtual asset sector) in its fourth-round FATF mutual evaluation. The FIU said South Korea will report on its implementation of international standards for virtual assets and virtual asset service providers and undergo a review as part of the targeted review.

"This will be an opportunity to comprehensively review the implementation and practical effectiveness of South Korea's existing anti-money laundering framework for virtual assets."

Korea Financial Intelligence Unit press release

The FIU said it will use the review to closely examine and improve how effectively the law is applied, and to prepare in advance for the fifth round of mutual evaluations. In South Korea, anti-money laundering obligations have applied to virtual asset service providers since March 25, 2021, under the amended Act on Reporting and Using Specified Financial Transaction Information. Existing operators had to register with the FIU by Sept. 24 that year, and inspections and supervision of the travel rule began on March 25, 2022, after a one-year grace period.

The FATF said the results of the targeted review will be published in June and October 2027. The FIU press release said the results are scheduled to be officially announced at the June 2027 plenary. The FATF said it will keep engaging with jurisdictions found to have strategic deficiencies in the virtual asset sector and support implementation through training and capacity-building programs.

North Korea and Iran remain on FATF blacklist; Vietnam warned

North Korea and Iran remained on the list of "high-risk jurisdictions subject to a call for action" (the blacklist), which calls for active countermeasures such as restrictions on financial transactions, as they had at the June plenary. Myanmar kept its high-risk status requiring enhanced due diligence, and the FATF reinforced its call on Myanmar to address the extensive fraud and scam activities emanating from the country.

North Korea was also named as the culprit behind a major crypto theft that took place while the plenary was underway. The U.S. Federal Bureau of Investigation (FBI) said on Oct. 31 that North Korea stole more than $6 billion in virtual assets from Binance on or about Oct. 29. The FBI said the North Korean hackers were converting the stolen assets primarily into ether (ETH) and urged decentralized finance (DeFi) services and virtual asset service providers to block transactions with the addresses involved.

The list of jurisdictions under increased monitoring (the grey list) shrank from 22 to 18 after Bulgaria, Côte d'Ivoire, the Democratic Republic of the Congo and Monaco were removed. Vietnam stayed on the list, and the FATF expressed significant concern with its pace of progress, saying it will consider next steps if Vietnam does not make tangible improvements by the next plenary. The plenary also approved a new report examining the end-to-end illicit financial flows linked to scam compounds, to be published next week. Reports from the new round of mutual evaluations of the United States and Mexico were also adopted at the plenary.