Money Laundering Concerns: South Korean Regulators Target Unregulated OTC Crypto Trades

South Korean financial regulators are intensifying their scrutiny of over-the-counter (OTC) cryptocurrency trades due to rising anxieties about their potential use in criminal activities. Reports indicate that regulatory authorities in the country are closely monitoring transactions in the unregulated OTC crypto market.

South Korean Authorities Address Criminal Aspects of Virtual Assets

Deputy Chief Prosecutor Ki No-Seong and Park Min-woo from the Financial Services Commission (FSC), along with other key regulatory officials, convened for a session titled "Criminal Legal Issues Related to Virtual Assets." In the meeting focusing on the unregulated OTC crypto market, No-Seong stressed the need for regulatory oversight to combat money laundering concerns.

Seong's statement, when translated through Google Translate, conveyed the following message: “Illegal virtual currency OTC companies have overseas corporations and are engaged in the business of converting illegally obtained virtual currency into Korean won or foreign currency. There is a need to regulate these companies as undeclared virtual asset trading businesses.”

The term "OTC crypto market" includes exchanges that lack official recognition from the South Korean government. It includes all cryptocurrency transactions conducted outside regulated platforms, including peer-to-peer (P2P) exchanges.

OTC Platforms Exploited for Converting Digital Assets to Korean Won

According to a report, South Korea's largest regulated crypto platform, Upbit, offers trading of 172 cryptocurrencies, while OTC platforms boast an extensive selection of up to 700 cryptocurrencies.

The report highlighted instances where OTC platforms have been exploited to convert digital assets into Korean won. The International Crimes Investigation Department of the Incheon District Prosecutors’ Office recently apprehended and indicted three individuals for engaging in illegal foreign exchange transactions between October 2021 and October 2022.

The arrested individuals were found to have purchased a staggering $70.9 million (94 billion won) worth of digital currency from overseas OTC providers at the request of Libyan clients. Subsequently, the cryptocurrency was sent to South Korea to be converted into cash.

According to estimates by the Korea Customs Service, the value of unlawful foreign exchange transactions using digital currency reached approximately $4 billion (5.6 trillion won) last year.

South Korea has gained a reputation for its cautious cryptocurrency regulations, implementing various measures to combat crypto-related crimes. The country's regulatory bodies have adopted a more proactive stance in the wake of Terra's collapse, demonstrating their commitment to maintaining the integrity of the cryptocurrency market.

As the nation's financial authorities continue to monitor the OTC crypto market vigilantly, the focus remains on striking a balance between fostering innovation and ensuring robust safeguards against illicit activities in the burgeoning cryptocurrency sector.