The 10th ASOSAI Research Project (4th Meeting)

Evaluating of the Fight against Corruption and Money Laundering

: Survey Results of Korea

12-14 Nov, 2013 (Moscow, Russia)

Shin, Min Chul Senior Research Fellow

The Board of Audit and Inspection of

Korea

Table of Contents

I. Background Information

II. Evaluation of Current Situation of Anti- Corruption

III. Evaluation of Current Situation of Anti-Money Laundering

IV. Conclusion

I. Background Information

• The former President Park, Jung Hee assumed office in 1961 and he initiated the fight against corruption in Korea in 1963 when he merged ‘the Board of Audit’ and ‘the Commission of Inspection’ to form the ‘Board of Audit and Inspection’ (Hereafter BAI) to act as direct check on the bureaucrats.

• The BAI has three main functions

- to confirm the closing accounts of the state’s revenues and expenditure

- to audit the accounts of the central government agencies, provincial governments and local autonomous bodies, and government-invested organizations to ensure proper and fair accounting

- to inspect the work done by government agencies and the duties of public officials to improve the operations and quality of government services.

II. Evaluation of the Role of Audit to Detect Corruption

PART I: Legal Status, Structure and Mandate of SAI

PART II: Role of SAI in the Prevention and Detection of Corruption

PART III: Assessment of SAI’s Performance and Integrity in the

Prevention and Detection of Corruption

PART IV: Audit Limitations in the Prevention and Detection of

Corruption International Cooperation

PART V: Cooperation Among SAIs and Anti-Corruption Agencies

P1: Legal Status, Structure and Mandate of SAI

• Established in 1948 (merged with ‘inspection commission’ in 1962)

• Constitutional Agency (Q1, Q4) - under president, but retain the independence status in regard to its duties (article 1, BAI act)

• A Collective (Board) System for Decision Making (Q2)

• The term of office of the Chairman is 4 years (one time re-appointment available) (Q3)

• Yearly budget undergoes review process of the Treasury and the Parliament (Q5)

• Nationwide Audit Remit (central, local, state-own firms, etc) (Q6)

• Auditing (Compliance, Financial, Performance Audit and Fraud/Forensic Audit, Environmental Audit, IT Audit etc.) (Q7)

P2: Role of SAI in the Prevention and Detection of Corruption

• Under the constitutions and laws, BAI shall inspect the functions of administrative agencies and public officials (Article 20, BAI Act) (Q8)

• Anti-Corruption Strategic Plan in accordance with the ACRC (Anti-corruption and Civil Right Commissions) (Q9,10)

• Fraud Audit (and inspection): scrutiny of specific project, funds or works, focusing more on fraud (Q11, Q17-Q19) - Monitor red flag symptoms regularly (proactive) and if it discover, the BAI conduct investigation (reactive) - Hot-line, alert-section in website, citizen help desk, training / research center, rules and regulations etc.

• Special Dep’t: Bureau of Special Investigation (Q13-16, Q20) - 150 staffs (total 1,030 staffs) - audit personnel that have special skills in detection of fraud (Q14) - regularly trained by Audit and Inspection Training Center (Q15) - Audit manual including inspection and investigation methods (Q16) - specialized skills in fraud, bribery and all types of illegal activities

P2: Role of SAI in the Prevention and Detection of Corruption

• Use the following audit service in detecting corruption (Q22) - Fraud/forensic audit (investigation, monitoring, whistle-blowing, etc) - IT audit (risk analysis, data-matching etc.) - Compliance audit (documentations, regulations etc.) and so on

• Issues a special audit report specifying the audited corrupted activities and submit to entity’s management. (also submit the result to the public prosecutions authorities in case of suspicion of crime) (Q24, Q25)

• Legal action and check-up system for the audit results (Q26, Q27) - Judgment on Liability for reparation (esp. accounting official) - Request for disciplinary action (punishment) - Request for correction, improvement - recommendations

* Responsible minister and agencies that received request should notify the result of measures or improvement to the BAI

P3: Assessment of SAI’s Performance and Integrity

• Contribute the BAI in the following field of anti-corruption (Rank) (Q28) - 1st : Detective actions - 2nd : Preventive actions - 3rd : Punitive actions

• Good performance (reputation) in combating corruption (Q29, 30)- Third Party satisfaction survey

• No IntoSAINT Methodology but very strict regulations for code of conduct (Q31)

ex. Legal obligation for all BAI staffs to report their (including relatives) assets every years

P4: Audit Limitations

• Organizational culture in the BAI does not have insufficient level of maturity to ensure the integrity (Q32) - watchdog (detection/response) > guiding dog (prevention)

• To better address growing demands for anti-corruption activities, legal systems such as ‘full access to bank records of government officials and private individuals’ involved are needed.

• Too many focus and effort on detection and inspection (wastes of resources and staffs)

P5: Cooperation Among SAIs and Anti Corruption Agencies

• To ensure good governance, the BAI support and communicate with internal audit office in departments and agencies (Q36)

• Not yet cooperated with other SAIs in foreign countries (Q37)

• Few official Joint Works among Anti-corruption agencies (Q38) - MOU with National Police Agency, Supreme Prosecutor’s Office

III. Evaluation of Role of Audit to Detect Money Laundering

PART I: Organizational Structure and Legal Mandate of SAI

PART II: Role of SAI in the Detection and Investigation of

Money Laundering

PART III: Assessment of SAI’s Performance and Integrity in the

Detection and Investigation of Money Laundering

PART IV: Audit Limitations in the Prevention and Detection of

Money Laudering

PART V: Cooperation Among SAIs and Anti-Corruption Agencies

P1: Organizational Structure and Legal Mandate of SAI

• Officially, the BAI does not have the role and responsibility on the Prevention and detection of Money Laundering - No strategic plan - Not an audit focus (merely incidential to the audit services) - No special department or units

• Fiancial Supervisory Service(FSS) is official authority for AML- Under the FSS, it has established a national Financial Intelligence Unit (FIU) in 2001 as a national center for the collecting, analysis, and dissemination of information regarding AML

P2: Role of SAI in the Detection and Investigation of ML

• AML activities are not the mandate of the BAI - No manual and guideline - No tools and techniques - Very few personnel with special skills in ML - No regular training - Hot-line, citizen help-desk and website can be the clues of ML issues

• However, if red symptom discovered during the audit process, the BAI conduct full investigation (only for public areas) - In case of serious one, the BAI submit the report to the law enforcement authorities as well as entity’s management - could request punishments and administrative sanctions

P3: Assessment of SAI’s Performance and Integrity

• No contribute the BAI in detective, preventive, and punitive actions in the field of money laundering

• Very poor performance (reputation) in combating ML

• Very few methods to use information about ML

P4: Audit Limitations

• Do not have full access to bank records of government officials and private individuals involved Factors hamper the BAI’s role in fight against ML - Lack of insufficient staffs - insufficient laws and regulations

• Necessary action to improve the role of the BAI - A change in the laws and regulations - Professional training

P5: Cooperation Among SAIs and Anti-Corruption Agencies

• Do not have exchange of information and experience with other SAI in Money Laundering

• Do not cooperate with other anti-corruption agencies and even enforcement authorities in dealing with Money Laundering

Conclusion

• 4rd Survey Result shows that the Korea SAI has strong power in dealing with corruption issues based on its legal and historical background.

• The BAI has its specialized department and staffs to deal with detect and investigate the fraud and corrupted issues. Because of its proactive and reactive approaches, the BAI has good performance and reputations as an effective anti-Corruption agency. However, it still has limitations in relationships with other anti-corruption agencies, overload working, mixed functions, etc.

• In Money-Laundering, the BAI does not have sufficient law, mandate, tools, and specialty. Only if the red flag is discovered during audit process, the BAI conduct the necessary investigation.

Thank You