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Foreign Exchange Inspection

Foreign Exchange Inspection

★"Leave your foreign exchange audit worries behind!"

★With K&K’s extensive experience, our professionals will guide you to the best audit outcomes through expert and seamless audit management.

What is Foreign Exchange Inspection?

The Foreign Exchange Investigation Agency (Customs authority) is responsible for the 'foreign exchange transaction inspection tasks' related to import and export transactions, related service transactions, and capital transactions, as well as handling foreign exchange crimes related to import and export transactions and related services and capital transactions. Therefore, the system that examines the legality of foreign exchange transactions for import and export companies is called 'Foreign Exchange Inspection.'

Recently Intensified Foreign Exchange Inspections

The Korea Customs authority has observed a continuous increase in property and financial crimes, such as property escape and money laundering through trade, due to the relaxation of foreign exchange regulations, the expansion of Free Trade Agreements (FTA), and the resulting decline in tariff rates. In response, since establishing a dedicated foreign exchange inspection organization at the Seoul Customs Service in 2018, the Korea Customs authority has been actively conducting foreign exchange inspections, separate from customs audits, focusing on mid-sized and large companies with active current transactions and capital transactions with overseas branches.

Transactions that involve the regular flow of goods, services, and income between countries

Notification of Payment and Receipt Methods Under Current Transactions (Article 16 of the Law)
When a resident settles claims or debts resulting from transactions or acts between "residents," "residents and non-residents," or "between non-residents" in a way that falls under any of the following categories (excluding cases where payments or receipts are made according to a report of capital transactions), the resident must notify the Minister of Strategy and Finance in advance, as prescribed by Presidential Decree

• When settling claims or debts by offsetting or canceling them through methods such as set-off.
• When settling beyond the period specified by the Minister of Strategy and Finance.
• When a resident makes or receives payments on behalf of a party who is not involved in the transaction or when a resident who is not a party to the transaction makes or receives payments on behalf of a non-resident who is involved in the transaction.
• When payments or receipts are made without going through a foreign exchange business institution.
• However, in cases where the transaction is small in amount or is a routine transaction as prescribed by Presidential Decree for the purpose of stabilizing the supply and demand of foreign exchange and facilitating external transactions, the report may be made after the fact or may not be required.

Reporting (Permission) Items	Reporting (Permission) Authorities
Set-off	Report to the head of a foreign exchange bank, etc.
Offset accounting (included in set-off)	Report designated transactions to the head of a foreign exchange bank
Excess payment beyond the specified period, etc.	Report to the Bank of Korea, etc.
Third-party payment, etc.	Foreign exchange bank, Bank of Korea
Payments not through a foreign exchange bank	Bank of Korea

Capital Transactions

The Foreign Exchange Transactions Act defines certain types of transactions listed below as capital transactions, and it is stipulated that transactions not listed cannot be considered capital transactions.
For capital transactions defined by law, it is required to report them to the Minister of Strategy and Finance according to the Presidential Decree. (Reporting to the head of a foreign exchange bank or the Governor of the Bank of Korea)

• Capital transactions related to deposits and trust contracts
• Capital transactions related to money lending contracts and debt guarantee contracts
• Capital transactions related to the sale and purchase of external payment methods, bonds, and other securities, and service contracts
• Acquisition of securities from a non-resident by a resident
• Acquisition of securities from a resident by a non-resident
• Issuance and solicitation of securities
• Derivatives trading
• Real estate transactions
• Overseas direct investment, etc.

Key Services of K&K

• Pre-diagnosis of Foreign Exchange Risks (Health Check for FX Transactions) • Representation in Foreign Exchange Investigations • Legal Advisory on the Foreign Exchange Transactions Act • Representation for Reporting under the Foreign Exchange Transactions Act