Risks 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.
