Mr. Kwon Ki-won is the head of D&A LLC Legal Affairs Office.
An increasing number of businesses are operating virtual asset businesses without reporting to South Korea’s Financial Intelligence Bureau, in violation of the Act on Reporting and Use of Specified Financial Transaction Information (commonly known as the Specified Financial Information Act).
Despite the FIU’s strong enforcement efforts through continuous monitoring, informing users, and working with relevant agencies, information encouraging the use of unreported operators (including false or exaggerated claims such as high profit guarantees) continues to spread through blogs, open chat rooms, and social media.
In a news release issued earlier this month, the FIU detailed the risks posed by illegal operators, common types of crypto-related illegal activities, and their planned actions. It also said that virtual asset operators that are not reported to the FIU are illegal businesses.
Crypto asset businesses are required to report FIU under the Specified Financial Information Act
Under the Specified Financial Information Act, crypto asset businesses (including those seeking to operate such businesses) are required to report the following information to the Director General of the FIU: Representative and registered officer major shareholder. Type of activity carried out. Information about real-name authenticated deposit and withdrawal accounts. Organization, staffing, IT systems and internal controls to comply with virtual asset laws. Information regarding information security management system certification (Article 7, Paragraph 1, Enforcement Order Article 10-11, Paragraphs 1 and 2).
A “crypto-asset business operator” under the Crypto-Asset User Protection Act refers to a person who, as a business, buys, sells, exchanges, transfers, stores, or manages crypto-assets, or acts as an intermediary, arranger, or agent for the same (Article 2, Paragraph 2).
Reporting obligations also apply when foreign businesses conduct business targeting Korean users (Article 6, Paragraph 2). If a business operator violates the obligation and engages in crypto-asset transactions as a business without reporting, it may be subject to imprisonment of up to 5 years or a fine of up to 50 million won (Article 17, Paragraph 1).
FIU identifies illegal traders and reports them to law enforcement authorities
The FIU news release lists 27 crypto asset businesses that have been reported to the FIU, and all other unreported businesses have been confirmed to be illegal under the Specified Financial Information Act. According to the report, the FIU notified law enforcement authorities of 27 unreported operators and warned them that those not reported to the FIU may be in violation.
The FIU said illegal operators are not subject to the control and supervision of financial regulators and may lack appropriate anti-money laundering and user protection systems. As a result, users who transact through illegal vendors may find it difficult to obtain relief for financial losses.
Common types of crypto-related illegal activities
The FIU classified recent illegal activities by unreported operators into three categories and provided examples.
The first is an anonymous stablecoin exchange via Telegram or open chat rooms. Promoting stablecoin transactions in KakaoTalk open chat rooms etc. violates the Specified Financial Information Act.
Second, promote or broker unreported businesses, including referrals, through blogs and social media. The FIU said it is against the law to provide referral links on internet blogs while promoting certain virtual currency exchanges, where users receive a commission discount by entering a referral code and the referrer receives a portion of the commission.
The third is the implementation of “Fanchigi,” an unofficial remittance scheme using crypto assets using currency exchange offices. The FIU states that the act of a sender remitting legal currency to an accomplice overseas, the accomplice remitting the same amount of stable coins to a domestic exchange operator, and the domestic operator depositing the stable coins may violate the Specified Financial Information Act and the Foreign Exchange Transactions Act.
What virtual asset users need to know
By presenting three types of transactions, the FIU warned that such actions may fall under the category of transactions with crypto asset operators that violate the Specified Financial Information Act.
However, this crime applies when a “virtual asset business operator” fails to notify, violates Article 7, Paragraph 1, and engages in virtual asset transactions “in the course of business,” which calls into question its eligibility as a crypto asset business operator.
The Supreme Court stated that in order to determine whether a business falls under the category of a crypto asset business that conducts transactions “in the course of business,” it is necessary to examine whether the business repeatedly and continuously engages in crypto asset transactions for the purpose of profit. The report said that given the intention of the amendment to include virtual asset operators in anti-money laundering and counter-terrorist financing systems, the evaluation should take into account the purpose, type, size, frequency, duration and method of transactions, based on social norms. Additionally, the court held that if a general user repeatedly buys, sells, or exchanges crypto assets solely for their own benefit, it is generally unlikely to fall under the category of a crypto asset business operator unless there are special circumstances, but if a general user repeatedly engages in transactions for the benefit of an unspecified number of customers or users and receives compensation as compensation, the user generally falls under the category of a crypto asset business operator (Supreme Court judgment 2024.12.12, 2024 Do10710).
An important test may be whether an operator has the “business” characteristic, but it may be difficult for users to know in advance. In P2P transactions, prices change in real time, making it difficult to determine whether or not one party has received “compensation.” Others argue that strict regulations will not help establish a fair and transparent trading order if the definition of business operators remains unclear.
Those who handle or trade crypto assets should closely monitor the policy direction of financial authorities and proactively consider whether FIU reporting is required.
About the author:
▲ Visiting Professor, Far Eastern Research Institute, Kyungnam University
▲ Former visiting researcher at the Woodrow Wilson Center ▲ Former expert advisor to the National Defense Committee ▲ Former senior advisor to the Science, Information and Communications, and Broadcasting and Communications Commission ▲ Former senior advisor to the Committee on Foreign Affairs and Unification ▲ Adviser to the Aju Economic and Law Office ▲ Director of the Legislative Office at D&A Law Office ▲ Visiting Professor, Faculty of Government, Chuo University
*This article was translated by AI from an article published in Aju Business Daily.
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