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Blogs CryptoRisks of Domestic Cryptocurrency OTC Transactions
Definition of Cryptocurrency OTC Transactions Cryptocurrency OTC (Over-the-Counter) transactions involve the exchange of fiat currency, such as Korean won (KRW), into USDT (Tether) on a continuous, repetitive, and profit-driven basis. How It Works An OTC broker receives requests from specific organizations and facilitates transactions by: Receiving fiat currency (KRW) from individual customers into their account. Depositing the equivalent USDT from their holdings into the customer’s cryptocurrency exchange account as designated by the organization. Charging a commission fee, typically around 5% of the transaction amount. Violation of the Specific Financial Information Act (Special Act) Cryptocurrency OTC operators may be at risk of violating the Specific Financial Information Act (Special Act) in South Korea. If a business engages in repeated brokerage of cryptocurrency transactions for profit without proper registration, it constitutes a violation of the Special Act. The risks escalate significantly if the transactions involve illicit funds, such as those related to phishing schemes, drug money, or gambling proceeds. Special Act Article 7(1): Any business operating cryptocurrency transactions must register with the Financial Intelligence Unit (FIU). Special Act Article 17(1): Failure to comply may result in imprisonment of up to 5 years or a fine of up to 50 million KRW. Legal Precedent and Penalties Recent court rulings in South Korea have affirmed that individuals engaging in continuous, repetitive, and profit-driven cryptocurrency brokerage are classified as Virtual Asset Service Providers (VASPs) under the Special Act. In a notable case, the court imposed a 1 year and 6 months prison sentence based on the frequency and scale of transactions. This decision underscores the gravity of conducting cryptocurrency brokerage without proper registration. Key Takeaways Businesses conducting cryptocurrency transactions as a commercial activity must register with the Financial Intelligence Unit to comply with the Special Act. Violations can lead to severe penalties, including imprisonment and fines. Given the potential misuse of cryptocurrencies in criminal activities such as phishing and money laundering, stricter regulatory measures are necessary to ensure compliance and safeguard the financial system.
2024-09-12 X (Twitter) -
Blogs Crypto
Supreme Court Ruling: Legal Characteristics and Specificity of Virtual Assets in South Korea
The Supreme Court of South Korea has defined virtual assets as "digital representations of economic value that are not controlled by the state but are granted value through blockchain or other encrypted distributed ledgers, qualifying as property benefits" (referencing Supreme Court Decision 2021Do9855, November 11, 2021). The Court emphasized the distinct characteristics of virtual assets, such as the ability to verify only the addresses of electronic wallets without identifying the user's personal information, and the distributed recording of transaction histories, which set them apart from traditional assets. Furthermore, the Supreme Court noted that virtual assets are not subject to the same level of regulation as legal tender and involve inherent risks in transactions. Consequently, the Court concluded that virtual assets do not warrant the same level of legal protection as legal tender under criminal law.
2024-09-10 X (Twitter) -
Blogs Crypto HOT
The Need to Allow Virtual Asset Trading for Corporations and Foreigners
Current Situation of Virtual Asset Trading in Korea In Korea, virtual asset trading requires the use of real-name accounts linked to banks, following Know Your Customer (KYC) verification. Customers must deposit Korean won (KRW) into these accounts to trade virtual assets on exchanges. However, the current system imposes significant restrictions: Only one bank can be linked to a single exchange, preventing customers from using other banks for KRW deposits and withdrawals. Corporations and foreigners are prohibited from opening accounts on virtual asset exchanges, even though they can open bank accounts. This restriction is guided by financial authority policies but lacks clear legal justification. Legal Framework Supporting Corporate and Foreigner Accounts Under Korea's Act on Reporting and Use of Specified Financial Transaction Information (Specific Financial Information Act): Articles 5-2 (Customer Due Diligence) and 5-3 (Information Provision Obligations) presuppose that corporations and foreigners can open accounts for virtual asset transactions. Virtual asset service providers (VASPs) are classified as "financial institutions," but there is no legal basis for excluding corporations and foreign customers from opening accounts. This disparity between legal provisions and financial authority guidelines has created a practical bottleneck for businesses operating in Korea’s globally significant virtual asset market. Implications of the Ban Practical Challenges for Businesses Korean companies engaged in global virtual asset projects require corporate accounts for operational purposes. Due to the prohibition, many corporations manage virtual asset funds through personal accounts of representatives or financial officers. This practice: Blurs the distinction between personal and corporate funds. Increases the risk of embezzlement and other legal liabilities within the organization. Absence of Legal Justification While the Specific Financial Information Act supports the inclusion of corporations and foreigners as virtual asset customers, the prohibition by financial authorities: Lacks a clear legal foundation. Contradicts the intent of existing regulations designed to enhance transparency and compliance. Potential Negative Outcomes The ban drives corporations to seek alternative, less transparent methods of managing virtual assets. By not addressing the issues arising from this prohibition, financial authorities risk encouraging greater illegal activity, such as money laundering, rather than mitigating it. Recommendations Policy Revision Instead of an outright prohibition, financial authorities should adopt policies that address specific concerns, such as anti-money laundering (AML) and investor protection. Strengthen compliance requirements for corporate and foreign accounts rather than banning them altogether. Clear Regulatory Guidelines Establish transparent and consistent rules for corporations and foreigners wishing to engage in virtual asset trading. Enhanced Monitoring and Reporting Implement robust monitoring mechanisms to prevent misuse while ensuring legitimate corporate and foreign users can access virtual asset markets. Conclusion Banning corporate and foreign accounts for virtual asset trading does not address the root causes of potential risks and instead creates new problems, including internal legal liabilities and financial inefficiencies. Korea’s global role in the virtual asset market demands proactive and legally grounded solutions that balance compliance with economic innovation. The focus should shift from prohibition to regulation, ensuring the market's integrity while enabling fair access for all participants.
2024-06-19 X (Twitter)
