Banks must identify a company's beneficial owner: the 25% test and 3 steps

This guide is for foreign founders and managers who are opening a bank account for a newly registered company in Korea, including subsidiaries of overseas parent companies. After incorporation, the bank visit often takes more than a day. The reason is a step that is not on the usual document list: the bank must identify the company's beneficial owner (실제 소유자), and the key threshold is 25%.

Why the bank asks who owns your company

Article 5-2 of the Act on Reporting and Using Specified Financial Transaction Information (특정 금융거래정보의 보고 및 이용 등에 관한 법률) puts a customer due diligence duty (고객확인의무) on financial companies (금융회사등) such as banks. For company customers, the beneficial owner check is the heaviest part of it.

Article 5-2(1), item 1, applies when a customer opens a new account, or makes a one-off financial transaction at or above an amount set by Presidential Decree. The bank must then verify:

• the customer's identity
• the natural person who ultimately controls the customer

For a company or other organisation, the bank verifies the matters set by Presidential Decree, which here means the Enforcement Decree of the Act.

The three steps to find the beneficial owner

Article 10-5(2) of the Enforcement Decree sets the order. The bank moves to the next step only if the previous step identifies no one.

The information to verify is name, date of birth and nationality. For the beneficial owner of an individual customer, the bank verifies the real name and, for a foreigner, the nationality.

The 25% figure is the practical turning point. If four shareholders hold 25% each, all four are step 1 owners. If five shareholders hold 20% each, step 1 finds no one and the bank moves to step 2. This is why banks ask for more documents when the shareholding is complex.

When a shareholder is itself a company

Article 10-5(3) opens another layer. Suppose a shareholder found under step 1 or step 2(a) is another company or organisation. If someone can exercise de facto influence over important management matters of that corporate shareholder, as a holder of 25% or more of its voting shares or as its largest shareholder or similar, the bank can verify that person's name, date of birth and nationality. If that person is also a company, the check moves up again.

This is why holding-company structures and subsidiaries of overseas parents take longer to open an account. The bank asks for documents on the parent's shareholders. If the parent is a foreign company, you may have to translate and certify those documents.

Why each bank asks for different documents

The law sets what must be verified. Which documents prove it is left to each financial company's internal guidelines. The latter part of Article 5-2(1) requires financial companies to write and run guidelines for this work, so under the same law the required documents differ from bank to bank. In practice this matters most: ask the branch in advance which extra documents it wants.

Source of funds and later updates

Article 5-2(1), item 2, goes further. Where there is a risk of money laundering (자금세탁행위) or terrorist financing (공중협박자금조달행위), for example when it is doubtful whether the customer is the beneficial owner, the bank must also verify the purpose of the transaction and the source of the funds, among other things. This is where questions about the source of funds come from when a new company wants to move large amounts early on.

The beneficial owner check does not end at account opening. If the shareholding changes or the representative is replaced, the bank can ask for updated information. Add a step to your internal checklist: tell your bank when shareholders or officers change.

Checklist

• Get a current certificate of all registered details of the company (법인등기사항전부증명서).
• Prepare a copy of the business registration certificate (사업자등록증) issued by the tax office.
• Bring the corporate seal certificate (법인인감증명서) and the registered corporate seal.
• Bring the representative's ID.
• Update the shareholder register (주주명부) and fix the shareholding ratios.
• First check whether anyone holds 25% or more.
• If not, identify the largest shareholder and anyone with the power to appoint a majority of officers.
• Check whether a separate de facto controller exists.
• Note each such person's name, date of birth and nationality.
• If a shareholder is a company, get its shareholder documents in advance.
• If a foreign company is a shareholder, allow time for translation and certification.
• Prepare evidence that the business is real (lease contract, office photos, trade contracts and so on).
• If an agent visits the bank, bring a power of attorney (위임장) and the agent's ID.
• Check that the authority covers account opening and the electronic banking application.
• If you plan to move funds right after incorporation, prepare an explanation of the source of funds.
• Apply for electronic banking (internet banking, OTP) at the same time as the account.
• A corporate card needs a separate review, so schedule it separately.
• If shareholders change, you may need to submit updated beneficial owner information.
• Put account opening early in your incorporation schedule in case of delays.
• Additional required documents can differ by branch, so ask in advance.