South Korea: FSS probe into banks finds $3.1B digital assets linked to forex transactions

The Financial Supervisory Service (FSS), South Korea’s financial industry watchdog, has announced that it found over KRW4.1 trillion ($3.1 billion) of suspicious international money transfers linked to digital assets while probing two local banks.

According to a Financial Times report, Lee Joon-soo, the deputy governor of the FSS, identified the banks involved as Woori Bank and Shinhan Banks, which the regulator has been investigating for the past month after receiving a tip-off.

The FSS says it discovered a total of KRW1.6 trillion ($1.2 billion) worth of abnormal foreign exchange (forex) transactions between May 2021 and June 2022 at the five branches operated by Woori Bank. Another KRW2.5 trillion ($1.9 billion) of dubious forex transactions were also carried out at 11 Shinhan Bank branches between February 2021 and early July this year.

The investigation revealed that the transactions are part of an elaborate money laundering scheme. The banks were acting on behalf of 22 trade corporations that received money from local digital assets exchanges.

“It’s been confirmed that most of the abnormal remittances were sent from trade corporations’ banking accounts after the accounts received money from local cryptocurrency exchanges,” the deputy governor said.

Some of the trade corporations were registered to operate jewelry or tourism-related businesses. The FSS has figured out that the opaque money flow to the trade corporations is from digital assets exchanges. The funds get transferred to foreign corporations with a management staff with close ties—sometimes by the same employee or family members—to the South Korea-based corporations.

However, where the digital assets exchanges source the funds in the first place is still a mystery. The FSS says it has asked all other banks in the country to submit internal investigations of their international remittance transaction by the end of the month based on suspicion that the scheme may have spread to them.

South Korea leaving no room for digital assets-related crimes

The FSS will report all culpable corporations to the country’s prosecutors as well as the Korea Customs Service. Fines and sanctions will follow after the investigation. The National Intelligence Service is also conducting its separate investigation of the matter, the report said.

South Korea has sent a strong message to malicious actors in the digital assets market that there will be no room for them in the country. Earlier this month, prosecutors investigating the Terra UST and LUNA crash raided 15 locations, including seven local exchanges and the homes and offices of their management staff.

The government has also been hard on the heels of Do Kwon and Shin Hyun-seong, the co-founders of Terra core developers Terraform Labs (TFL). Additionally, the country has been introducing new departments and regulations that will rein in the risks posed by digital assets to consumers.

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