South Korea expands account freezes beyond voice phishing to cover new fraud schemes

Suspected new-type phishing accounts now subject to up to 67 business days of transaction suspension

Starting Tuesday, a new regime takes effect allowing authorities to freeze bank accounts suspected of use not only in voice phishing but also in emerging fraud schemes such as "no-show scams." Financial regulators are also pushing to amend the Act on Reporting and Using Specified Financial Transaction Information — commonly known as the Financial Intelligence Act — to extend transaction suspensions to a broader range of crimes targeting ordinary citizens, including drug trafficking, illegal gambling and unlicensed lending.

The Financial Intelligence Unit convened its AML/CFT Policy Advisory Committee on Monday under FIU Director Lee Hyung-joo to discuss new measures for freezing accounts suspected of involvement in emerging phishing crimes, as well as the legislative amendments needed to institutionalize the broader suspension regime.

The core of the new measures is an expansion of freeze authority to cover "phishing disguised as goods or services transactions" — schemes that had previously fallen outside the legal definition of voice phishing under the existing refund law, making account suspensions difficult. Targeted crimes include no-show scams, in which fraudsters trick victims into wiring money to a specific business under the pretense of purchasing goods, then abscond with the funds.

Under the new system, when a victim files a report with the 112 emergency line or a police station, the financial institution will first place a temporary hold on the account. If police confirm the case qualifies as a new-type phishing scheme, the account will be classified as subject to enhanced customer due diligence under the Financial Intelligence Act, triggering a formal temporary suspension of all deposits and withdrawals.

Once notified of the suspension by the financial institution, the FIU will review within seven business days whether the freeze should be maintained. If it determines the suspension is warranted, the institution may impose a full freeze for an additional 30 business days, with the option of one further extension upon police request.

Account holders may file an objection through the financial institution or police, and the freeze will be lifted if they are cleared of any connection to criminal activity. The aim is to intercept criminal proceeds at the financial transaction stage before they can be rapidly dispersed into other accounts or virtual assets.

Alongside this, the FIU is pursuing amendments to the Financial Intelligence Act to establish a clear legal basis for the suspension regime. The proposed revisions would grant the FIU direct authority to freeze deposits and withdrawals on accounts suspected of links to crimes targeting ordinary citizens, including drug offenses, illegal gambling, unlicensed lending and large-scale fraud.

Under current law, transaction suspensions are available only for certain crimes — such as voice phishing and capital market misconduct — under separate statutes. The FIU said it expects the amendments to enable swift blocking of criminal proceeds across a much wider range of offenses.

"Crimes targeting ordinary people have evolved into sophisticated offenses that exploit non-face-to-face digital technologies, and criminal proceeds are being transferred and concealed more quickly and cleverly through burner accounts, virtual assets and cross-border remittances," FIU Director Lee said. "To effectively block criminal proceeds and prevent further harm, preemptive and swift transaction suspension measures at the financial transaction stage are essential."

forest@heraldcorp.com