South Korea: New Investigation Reveals $6.5 Billion in Digital Assets Linked to Illegal Transactions

Financial Surveillance Services (FSS), the regulator of South Korea’s financial sector, has uncovered more illicit foreign exchange transactions related to digital asset arbitrage transactions.

According to a report Per Asia Times, the FSS issued a directive to banks to carry out a self-inspection, where they discovered $6.5 billion (KRW 8.5 trillion) in suspicious transactions. The banks also noted that most transactions came from digital asset exchanges between January 2021 and June this year.

These exchanges had an elaborate money laundering scheme in place to exploit the Kimchi bounty by buying digital assets from overseas markets and reselling them at a profit in the more expensive South Korean market.

The FSS discovered the scheme since its investigation of Woori Bank and Shinhan Bank in July, where it uncovered a total of $3.1 billion in suspicious transactions.

Explaining the mechanism used to operate the scheme, the FSS said exchanges send funds to locally registered business groups, which in turn send foreign funds to their counterparts registered overseas, primarily in Hong Kong.

FSS chief Lee Bok-hyeon said the culprits would not go unpunished. He added that illegal foreign exchange transactions have contributed to capital flight from the South Korean market.

“We take the foreign exchange transaction seriously and penalties are inevitable,” he said in a statement.

The FSS will complete its on-site inspection of Woori and Shinhan Bank on August 19, after which it will impose the necessary sanctions. The on-site inspection team will also proceed to other banks that have found suspicious transactions.

South Korea’s digital asset market scrutiny continues to deepen

Meanwhile, prosecutors have cracked down on those involved in the scheme. Last week, investigators from the Daegu District Prosecutor’s Office reportedly arrested three people involved in illegal foreign exchange transactions with Woori Bank. The individuals allegedly wired around $307 million for the exchange account through dodgy companies they set up.

Banking investigations are only part of efforts by South Korean authorities to weed out bad faith players in the digital asset market. The government has cracked down on digital asset companies and exchanges, mainly due to the Terra LUNA and UST crashes.

Efforts to introduce regulations for the industry have been accelerated while interim oversight committees have been set up.

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