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Newsletter | August 2014, Issue 3
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SECURITIES
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The Real Name Act Amended to Penalize Persons Who Borrow or Lend Names for Illegal Financial Transactions
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On May 28, 2014, the National Assembly passed an amendment to the Act Concerning Financial Transactions by Real Name and Protection of Confidentiality (“Real Name Act”). The Real Name Act prohibits conducting illegal financial transactions by using a name borrowed from another person (“Borrowed Name Transactions”). The Real Name Act already stipulates a ground for imposing an administrative fine on employees of financial institutions involved in Borrowed Name Transactions, but it does not provide any penalty for those persons who lend or borrow names for Borrowed Name Transactions. The amendment now penalizes persons for lending or borrowing names in Borrowed Name Transactions. The amendment will take effect on November 29, 2014. Based on the amendment, Borrowed Name Transactions may result in not only criminal or administrative penalties, but also other civil disadvantages. The following summarizes major points of the amendment.
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Prohibition Against Conducting, Arranging or Brokering Borrowed Name Transactions, and Criminal Punishment for Violators: The amendment prohibits Borrowed Name Transactions conducted to conceal illegally obtained wealth, to launder money, to supply funds used for posing public threats, to avoid foreclosure on properties, or to perpetrate any other illegal act. The amendment also prohibits employees of financial institutions from arranging or brokering Borrowed Name Transactions. Based on the amendment, persons violating any such prohibition can be subject to imprisonment of up to 5 years or a criminal fine of up to KRW 50 million. Additionally, the amendment raises the maximum amount of administrative fine, which can be imposed on employees of financial institutions for violating the Real Name Act, to KRW 30 million from KRW 5 million.
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Presumption of Ownership of Financial Assets by Title Holders: Under the amendment, financial assets held in the name of a given person shall be presumed to be actually owned by that person. According to a Supreme Court case, a beneficial owner, rather than a title owner, can be regarded as the actual owner of financial assets. However, by presuming that the title owner is the actual owner of the financial assets held under his/her name, the amendment make it more difficult for the beneficial owner to claim title on financial assets held in the name of their title owner.
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Duty to Explain by a Financial Institution: The amendment requires a financial institution to explain the prohibition of Borrowed Name Transactions to its customers.
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New Administrative Sanctions Against Financial Institutions: The amendment provides a new ground for imposing an administrative sanction on a financial institution if its employee violates the Real Name Act.
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