[War on voice phishing ③]

Proactive freezes on suspected fraud accounts gain ground,

but handling of remaining criminal funds remains a blind spot

A system to trace, seize and recover balances is needed

Recovered funds could seed a shared victim-relief fund

[Created using ChatGPT]
[Created using ChatGPT]

"Tens of billions of won piled up in an account belonging to someone born in 2006 — within a single hour. Anyone would find that suspicious, so we put a payment freeze on it. But if no victim files a complaint, we have no choice but to release the funds. The real question is what to do with the money left sitting in a suspected fraud account."

Banks can flag a suspected voice-phishing account and freeze it, yet if no victim comes forward, they are ultimately forced to return the money to the account holder. Legislation is now being pushed to expand financial institutions' authority to proactively freeze and close suspected fraud accounts. The problem, experts say, is that the proposed bills leave a critical gap: there is no post-freeze framework for handling the criminal funds that remain in those accounts. Calls are growing for a legal mechanism that would allow banks to hold such funds separately and enable police to trace and recover them.

Blind spot after burner-account freeze — According to political circles on Sunday, the government and the ruling party are pushing to introduce a "no-fault liability" regime that would require financial institutions to compensate voice-phishing victims upfront. Two bills amending the Telecommunications Fraud Victim Compensation Act have been filed in the National Assembly — one by Democratic Party of Korea lawmaker Kang Jun-hyeon and another by fellow Democratic Party lawmaker Jo In-cheol. Kang's bill caps no-fault compensation at 50 million won ($35,300), while Jo's sets a minimum payout of 10 million won. The financial industry broadly supports the intent to protect victims but warns that concentrating the compensation burden on financial institutions could ultimately pass the cost on to consumers.

The bills do represent clear progress in one respect: they expand financial institutions' authority to act preemptively against suspected fraud accounts. Beyond allowing banks to freeze such accounts even without a victim's complaint, the legislation would permit them to close accounts outright or impose transaction limits when there is a high likelihood of fraudulent use.

The missing piece, however, is any post-action mechanism for handling the suspected criminal funds once a freeze or closure is in place. Banks have no authority to independently seize or recover account balances after closing an account, and no mechanism exists to automatically refer the funds to a police investigation or criminal-proceeds recovery process. "We hold the account to keep the money from being withdrawn by any means, but without clear guidelines on what happens next, we end up having to hand the frozen funds back to the account holder," one industry official said. "Follow-up measures — government recovery or separate custodial holding — need to be put in place at the same time."

Frozen funds face return to suspected criminals — From the banks' perspective, identifying the original victim is rarely straightforward, given that burner accounts typically pass through multiple layers of money laundering. Returning the remaining balance to the victim is therefore equally difficult. Investment fraud cases involving fake trading apps are a particular problem: victims often believe they are making legitimate investments and fail to realize — or report — that they have been defrauded.

Experts warn that criminal organizations are likely to exploit these institutional loopholes. Even now, it is common for account holders named on suspected fraud accounts to contest payment freezes while victims are still slow to file complaints — lodging grievances with the Financial Supervisory Service or hiring lawyers to demand the freeze be lifted. More recently, cases have emerged in which fraudsters persuade victims to withdraw their complaints after reaching a private settlement, allowing the freeze to be lifted so the account can be recycled for further criminal activity.

The burden of keeping suspicious accounts frozen falls squarely on financial institutions and their staff. Account holders have responded with shouting, verbal abuse and, in some cases, death threats. "There are countless accounts where not a single lifestyle expense has been recorded, yet hundreds of millions of won suddenly pile up," said one voice-phishing monitoring officer. "Bank employees are left to judge — and be held responsible for — whether to lift a freeze, and we live with that anxiety every day."

Unclaimed criminal funds could finance victim relief — Experts say the coercive power to recover funds suspected of being criminal proceeds needs to be strengthened. They argue that a post-freeze management framework must be established to allow financial institutions to hold, trace and recover suspected criminal funds remaining in accounts.

One option gaining traction is channeling recovered funds from suspected fraud accounts into a voice-phishing victim-relief pool. If a shared financial-sector victim-relief fund is established as part of the forthcoming no-fault liability regime, recovered funds could be folded in as a funding source.

Jeong Un-yeong, chair of the Finance and Happiness Network, which runs voice-phishing prevention education programs, said the case for creating a victim-relief fund is well established. "Voice phishing has grown beyond what individual caution alone can prevent — it is now a crime that strikes at people's basic livelihoods," he said. "In practice, the fund should go beyond compensating victims and also support AI-powered fraud-prevention training and market-based prevention solutions."


forest@heraldcorp.com
kyoung@heraldcorp.com