South Korea: 16 arrested over alleged illegal digital assets-linked forex transactions

South Korea’s crackdown on the digital asset market’s exploitation of the “Kimchi premium” through illegal foreign exchange transactions has continued to gain momentum. The South Korean Customs Service has arrested 16 individuals allegedly involved in illicit digital assets-linked foreign exchange transactions.

As reported by local media outlet Newsis, the arrests result from an investigation that started in February. The probe was based on information collected by the customs authority and foreign exchange data from the Korea Financial Intelligence Unit (FUI) of illegal transactions worth KRW2.7 trillion (around $2 billion at the time of writing).

More than KRW380 billion ($283 million) of the reported transactions were facilitated through illegal remittance agencies linked to the individuals. Another KRW68.7 billion ($50 million) were illegal withdrawals from paper companies with which the individuals set up or are connected.

Two of the 16 unnamed individuals have been sent to prosecution to face charges of operating and transacting with digital asset entities that violate Korea’s Foreign Exchange Transactions Act. The regulation was amended in 2017 to stipulate that entities involved in digital asset transactions must get regulatory approval from the Financial Services Commission (FSC).

Meanwhile, fines related to negligence have been imposed on seven others, while the remaining seven are being further investigated. In a briefing, Lee Min-geun, Director of the Seoul Customs Investigation Bureau, 2nd Bureau of Investigation, said it is likely that the activities the individuals are linked to are also in breach of the foreign exchange act.

“There is a high possibility that foreign exchange transactions to take advantage of the market capitalization of domestic and foreign virtual assets violate the Foreign Exchange Transactions Act,” he said.

The report added that the customs service intends to set up a dedicated investigation team in cooperation with the Seoul Central District Prosecutors’ Office.

Digital assets now the dominant illegal forex transactions source in South Korea

According to a Bloomberg report, citing data from the customs service, the digital asset market has set a new high in 2022 as the leading source of illicit forex transactions in South Korea. Data showed that nearly 70% of transactions violating foreign exchange rules in the country are tied to digital assets, up from 61% last year. 

Notably, the customs services data is unrelated to cases being handled by the Financial Supervisory Service (FSS). The FSS probe into local banks has so far found “abnormal” digital assets-linked foreign currency transactions worth around $3.4 billion.

Similarly, the FIU identified and took regulatory action against 16 unregistered foreign digital assets exchanges, including Poloniex, KuCoin, and Phemex, operating in the country earlier this month.

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