South Korea is known for its strict and structured approach to regulating cryptocurrencies. The government and regulators are working to create a safe and transparent environment for cryptocurrency trading and investment.
The main document controlling cryptocurrency activities is the “Law on the Reporting and Use of Certain Financial Transaction Information.” This law requires strict compliance with anti-money laundering (AML) and anti-terrorist financing (CTF) measures by all cryptocurrency exchanges operating in the country.
On February 7, the Financial Services Commission (FSC), South Korea's main financial regulator, announced a new law that seeks to protect the rights of crypto investors and promote transparency.
Another important aspect of regulation in South Korea is the requirement to have bank accounts in your real name to trade cryptocurrencies. This is aimed at eliminating anonymous transactions and ensuring a traceable and transparent market. This requirement was introduced to limit speculative investing and provide greater stability in the digital currency market.
Cryptocurrency status in South Korea
The cryptocurrency enjoys a vibrant and dynamic image in South Korea, attracting high interest from both retail and institutional investors. The country has one of the world's most active cryptocurrency trading markets. Despite the government's strong regulatory stance, demand for digital currencies continues to grow, fueled by technological advances and a strong fintech sector.
A strict regulatory framework is presented to the public and investors as a step towards legitimizing cryptocurrency transactions. By adhering to strict AML and CTF regulations, South Korea aims to protect investors and reduce the risk of fraud and illegal activities associated with cryptocurrencies.
CBDC
The Bank of Korea is actively exploring the concept of a central bank digital currency (CBDC) as part of its future monetary policy. The initiative aims to create a digital form of the Korean won that will use blockchain technology to facilitate secure and efficient financial transactions.
According to information from the Korea Times, a pilot project for CBDC is planned in South Korea as early as this year, 2024. It will involve 100,000 citizens to test payments in real-world conditions. The Bank of Korea announced that it will cooperate with commercial banks to select project participants.
SOUTH KOREAN CRYPTO CRIMINALS FACE LIFE IMPRISONMENT
Staff at the Financial Services Commission in South Korea have made changes to the Virtual Asset Owner Protection Act that have been approved at the legislative level. The government is stressing its determination to continue the fight against online crime, with stronger laws aimed at eliminating financial crime.
South Korea's new law on cryptocurrencies prohibits the use of “undisclosed important information” about cryptocurrencies, market manipulation and illegal trading. The Virtual Asset User Protection Act is expected to go into effect on July 19, 2024, after the bill was passed on July 18, 2023.
Each incident will be examined separately. A minor crime may result in up to one year in prison or a fine. However, for stealing cryptocurrency worth more than 5 billion won (equivalent to more than 3.7 million US dollars), the offender can be sentenced to life imprisonment. In certain cases, instead of life imprisonment, a fine of twice the amount of income received may be imposed.
CRYPTOCRIME IN SOUTH KOREA
In South Korea, cryptocurrency crimes are high on the law enforcement agenda, especially in light of the growing number of digital asset scams. These crimes range from theft of user funds to large-scale financial scams, attracting the attention of both national and international observers.
Terra Luna/ Do Kwon
One of the most high-profile cases in the South Korean cryptocurrency space involves Do Kwon, founder and CEO of Terraform Labs. Kwon became a central figure in the scandal after the collapse of the stablecoin TerraUSD (UST) and its related cryptocurrency Luna, leading to multibillion-dollar losses for investors around the world.
As a result of these events, South Korean authorities issued an international warrant for his arrest through Interpol, accusing him of fraud and violating corporate laws. Kwon's case was a warning to the crypto industry that governments are willing to crack down on those who abuse the trust of investors in the digital asset space.
Cryptocrime in 2023
Local digital asset exchanges reported a 49% increase in suspicious transactions in 2023, according to South Korea's Financial Intelligence Unit (FIU).
As a result, local crypto exchanges received 16,076 requests in 2023, compared to 10,797 in 2022. For comparison, the total number of suspicious transactions increased by 10.2%. The FIU also said that the number of notifications of alleged crypto crimes increased by approximately 90% in 2023 compared to last year.
AML CRYPTO OPINION
We note several key points reflecting the current state and future prospects of the digital asset market in the country:
First, the strengthening of the regulatory framework, including the “Act on the Reporting and Use of Certain Financial Transaction Information” and subsequent amendments, underscores South Korea's seriousness in creating a safe and transparent environment for trading and investing in cryptocurrencies.
The second aspect that needs attention is strict measures against crypto-crime, especially given the cases of Do Kwon and Terraform Labs. This example illustrates South Korea's determination to impose harsh sanctions on violators who abuse the trust of investors and undermine financial stability through cryptocurrency scams.
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