“The size of South Korea’s underground economy is approximately 30 percent of national GDP, which is considerably high,” said Kang. “And although there have only been very few cases of domestic terrorism financing, we can’t ignore the fact that there is underlying potential.” (image: KobizMedia/ Korea Bizwire)
SEOUL, July 8 (Korea Bizwire) – A recent assessment revealed the potential danger of South Korea’s underground economy playing a role in the financing of terrorism.
The issue was brought to light on Thursday by professor Kang Kyoung-hun from Dongguk University during a public hearing into the dangers of money laundering in Korea organized by the Korea Institute of Finance.
“The size of South Korea’s underground economy is approximately 30 percent of national GDP, which is considerably high,” said Kang. “And although there have only been very few cases of domestic terrorism financing, we can’t ignore the fact that there is underlying potential.”
The underground economy refers to all economic activities not officially recognized by the government, including prostitution, drug trafficking, and corporate slush funds.
In 2013 Austrian scholar Fridrich Schneider estimated the size of South Korea’s underground economy to be 24.7 percent of the nation’s GDP (2010). However, Schneider’s suggestion was met with skepticism and denial.
But Kang isn’t among the deniers, and claims that 50,000 won ($43) banknotes are likely being used to fuel Korea’s underground economy. First introduced in 2009, the bill is currently the highest-valued banknote in Korea.
“Although the percentage of cash transactions in Korea is on a similar level with other nations, because of the banknote’s high value, and convenience in trade and storage, 50,000-won notes have a higher likelihood of being used as tools for illicit funds.”
The point proves quite convincing when observing the note’s recollection rate provided by the Bank of Korea. From January to May this year, the bill’s recollection rate was 48.2 percent, while the rates for the rest of the banknotes exceeded 80 percent. Low recollection rates often indicate the poor circulation of bills, which can be a sign of leakage or use in illegal activities.
“Capital markets in South Korea is very open, which is why there’s a need to thoroughly examine their vulnerability to money laundering,” he added.
Professor Bae Young-su from the University of Seoul also pointed out the high risk of money laundering that Korea is exposed to.
He categorized organized crime, forgery, gambling, and speculation acts as high-risk crimes, and said, “These crimes have become much more elaborate in recent years, and I believe they’re closely related to market price manipulation and tax evasion.”
Mr. Bae also noted that although Korea has low rates of drug trafficking, bribery, corruption, abduction, and human trafficking, these activities must be closely monitored and controlled as they possess high social implications.
By Kevin Lee (kevinlee@koreabizwire.com)
