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By Lee Kyung-min

The inflow of investment funds from the Cayman Islands, a popular tax haven, stood at over $1.5 billion (1.9 trillion won) in the first six months of this year, the second-largest holdings after the U.S., the trade ministry data showed Tuesday.

The sharp 25-fold increase from $62 million a decade ago fans speculation that funds there could be linked to money laundering or tax evasion attempts, a claim strengthened by the island's low trading volume, the size of its economy and small population.

For context, the increase in foreign direct investment (FDI) in Korea in the same period was only 56 percent, standing at about $11 billion, up from $7.1 billion in 2012.

Data from Korea International Trade Association (KITA) showed that the Cayman Islands imported $2.84 million worth of goods made in Korea in the first half of this year. The population of only 60,000 was ranked as Korea's 184th-largest trading partner by volume.

Investment funds funneled through tax havens are mostly used for mergers and acquisitions (M&As), the ministry says.

Legal as they may be, concerns remain about illicit activities from links between the funds and tax evasion attempts through paper companies set up and operated by Korean nationals.

Figures

Data from the Ministry of Trade, Industry and Energy showed that the total FDI in Korea in the first half of the year came to $11.08 billion.

The U.S. topped the list of Korea's FDI partners with an investment of $2.94 billion, followed by the Cayman Islands ($1.54 billion) accounting for 13.9 percent of the total.

The top two were followed by Singapore ($1.39 billion), Japan ($893 million) and China ($888 million).

A tax haven is a jurisdiction with no or very low rates of taxation for foreign investors. It may also provide financial secrecy.

Tax haven countries offer foreign businesses and individuals minimal or no tax liability for their bank deposits in politically and economically stable environments. However, they can be exploited in illegal tax avoidance schemes.