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As cross-border transactions involving virtual assets and overseas payment services continue to increase, Korean regulators are paying closer attention to whether such transactions constitute unlicensed foreign exchange business or illegal remittance activities.

The Korea Customs Service recently conducted targeted inspections of high-risk money exchange businesses and identified violations involving false transaction records, foreign currency sales exceeding statutory limits, and failures to report large cash transactions. The businesses selected for inspection also included entities suspected of using virtual assets for illegal cross-border remittances.

A major regulatory change will take effect on December 3, 2026, when the amended Foreign Exchange Transactions Act comes into force. Under the amended Act, certain cross-border virtual asset transfer services will become subject to a separate registration requirement.

Virtual asset service providers, payment companies, remittance operators, and businesses offering cross-border settlement services should review whether their current business models fall within the scope of the new registration regime.
 

What Is “Hwanchigi” Under Korean Law?

“Hwanchigi” is not a term expressly defined in the Foreign Exchange Transactions Act.

It generally refers to an arrangement in which funds are transferred across borders without using a bank or another authorized foreign exchange institution. Instead, separate pools of funds or accounts in Korea and another country are used to produce the same economic effect as an international remittance.

For example, a person in Korea may pay Korean won to a local operator, while the operator’s overseas partner pays an equivalent amount in foreign currency to the intended recipient abroad.

The Korean won received in Korea is not physically transferred overseas. Nevertheless, because a corresponding payment is made abroad, the arrangement produces substantially the same result as an international remittance.

Article 8 of the Foreign Exchange Transactions Act generally requires a person who engages in foreign exchange business as a commercial activity to obtain the necessary registration.

A person may therefore be regarded as participating in foreign exchange business even if they did not personally send money overseas, provided that their role formed part of a broader structure designed to complete a cross-border payment.
 

A Transaction May Be Regulated Even If No Foreign Currency Crosses the Border

Under Korean foreign exchange law, the key issue is not whether the same cash or foreign currency physically crossed the border.

What matters is whether payments made in Korea and abroad were connected in a manner that produced the same economic effect as a cross-border transfer.

Common structures that may raise regulatory concerns include the following.

▪️ Korean Won Received in Korea and Foreign Currency Paid Overseas

A Korean account receives the funds, while an overseas partner or local office pays foreign currency to the designated recipient abroad.

▪️ Funds Received Overseas and Korean Won Paid in Korea

Foreign currency or local currency is received outside Korea, and Korean won is then paid into a designated Korean bank account.

▪️ Settlement Through Third-Party Accounts

Funds are paid or received through accounts held by family members, employees, acquaintances, or unrelated business entities rather than the actual sender or recipient.

▪️ Offshore and Domestic Obligations Offset Against Each Other

Amounts payable in Korea and abroad are offset, allowing the parties to settle without making a conventional international bank transfer.

If these transactions are conducted repeatedly and the operator earns fees or profits from exchange-rate differences, the activity may be treated as unregistered foreign exchange business.
 

Why the Supreme Court Treated Virtual Asset Arbitrage as Foreign Exchange Business

In its September 4, 2025 decision, Supreme Court Case No. 2024Do16540, the Court confirmed that a transaction may constitute foreign exchange business even where no foreign currency was directly transferred across the border.

In that case, the defendant received virtual assets from a non-resident located overseas, sold them through a Korean virtual asset exchange, and transferred the proceeds in Korean won to multiple domestic bank accounts designated by the non-resident.

The defendant did not personally remit foreign currency overseas.

Nevertheless, the Supreme Court upheld the lower court’s finding that the transaction performed substantially the same function as an inbound remittance service, in which a Korean foreign exchange bank pays Korean won to a domestic recipient based on payment instructions from a foreign bank.

The relevant question was therefore not simply whether the defendant had directly sent funds abroad. The Court examined whether the overall transaction structure effectively facilitated payments between Korea and another country.

However, the sale of virtual assets followed by a domestic Korean won transfer does not automatically constitute unregistered foreign exchange business in every case.

The following factors should be considered together:

▪️ The purpose and background of the transaction
▪️ The size and frequency of the transactions
▪️ The duration and degree of repetition
▪️ Whether fees or exchange-rate profits were earned
▪️ Whether the activity was conducted as a business
 

Can Virtual Assets and Overseas Payment Services Be Treated as Hwanchigi?

The use of virtual assets or overseas payment services does not, by itself, exclude a transaction from the application of Korean foreign exchange laws.

▪️ Receiving Korean Won and Sending Virtual Assets to an Overseas Wallet

Where Korean won is received in Korea and Bitcoin, USDT, or another virtual asset is sent to an overseas recipient in return, the transaction may be treated as a cross-border payment service rather than a simple virtual asset sale.

▪️ Receiving Virtual Assets Overseas and Paying Korean Won in Korea

A transaction may also be treated as cross-border payment activity where virtual assets received from overseas are sold in Korea and the proceeds are paid into domestic accounts designated by the overseas party.

▪️ Settling Funds Through WeChat Pay or Alipay

Regulatory concerns may arise where Korean won is received in Korea and an overseas payment account is funded abroad, or where funds are received overseas and Korean won is paid to a recipient in Korea.

These transactions are not automatically illegal.

The authorities will generally examine:

▪️ Whether the domestic payment corresponded to an overseas payment
▪️ Whether third-party accounts were used
▪️ Whether the activity was repeated
▪️ Whether the operator earned fees or exchange-rate profits
▪️ Whether the transaction was conducted for a commercial purpose
 

Key Changes Under the 2026 Amendment to the Foreign Exchange Transactions Act

The amended Foreign Exchange Transactions Act was promulgated on June 2, 2026 and will take effect on December 3, 2026.

The amendment introduces three major changes.

▪️ Registration Requirement for Cross-Border Virtual Asset Transfer Services

A virtual asset service provider that uses virtual asset sales, purchases, or exchanges to transfer value between Korea and another country, or to produce substantially the same effect, will be required to register with the Minister of Economy and Finance.

A virtual asset service provider registration under the Act on Reporting and Using Specified Financial Transaction Information may not be sufficient by itself.

A separate registration under the Foreign Exchange Transactions Act may be required where the business provides cross-border virtual asset transfer services.

▪️ Stronger Administrative Sanctions for Operating Outside the Registered Scope

A specialized foreign exchange business operator that conducts foreign exchange activities outside its registered scope may be subject to:

▪️ Cancellation of registration
▪️ Business restrictions
▪️ Suspension of business
▪️ Administrative surcharges imposed in place of certain suspension measures

Businesses should therefore confirm that their actual services remain within the scope of their registration.

▪️ Criminal Penalties for Unregistered Business and Certain Payment Procedure Violations

A person who conducts cross-border virtual asset transfer business without registration may be subject to:

▪️ Imprisonment for up to three years
▪️ A fine of up to KRW 300 million

The amended Act also introduces criminal penalties of:

▪️ Imprisonment for up to one year
▪️ A fine of up to KRW 100 million

These penalties may apply where a person violates prescribed payment procedures for the purpose of obtaining an improper financial benefit for themselves or another person.

The amendment does more than simply clarify which businesses must register. It expressly brings cross-border virtual asset transfer services within the registration framework and clarifies the scope of criminal liability for unregistered activities and certain payment procedure violations.
 

The Substance of the Fund Flow Matters More Than the Name of the Transaction

Virtual asset-based hwanchigi and arbitrage cases are primarily governed by the Foreign Exchange Transactions Act.

Depending on the transaction structure, the following laws may also apply:

▪️ The Act on Reporting and Using Specified Financial Transaction Information
▪️ The Virtual Asset User Protection Act
▪️ Other criminal and financial regulations related to money laundering, fraud, or unlawful fund transfers

Businesses and individuals should review the entire flow of funds, including:

▪️ The roles of the parties
▪️ Domestic and overseas bank transactions
▪️ Wallet transfers and transaction records
▪️ Fee and exchange-rate arrangements
▪️ The frequency and commercial nature of the activity

Decent Law Firm’s Virtual Asset Practice Group advises clients on investigations involving alleged violations of the Foreign Exchange Transactions Act and virtual asset-based remittance activities.

We also assist virtual asset businesses, payment providers, and cross-border settlement operators in assessing whether their services are subject to registration under the amended Act.

Where the Korea Customs Service or the police requests attendance or submission of documents, or where a business needs to determine whether its services fall within the amended regulatory framework, the transaction structure and supporting records should be reviewed before responding.



This publication is provided for general informational purposes only and does not constitute legal advice for any specific matter.