South Korea is taking a firm position to strengthen its oversight of cryptocurrency transactions, particularly those that cross its borders.
In an announcement at a recent G20 meeting in Washington, Finance Minister Choi Sang-Mok outlined new measures aimed at curbing tax evasion and preventing foreign exchange crimes facilitated by virtual assets.
This new approach aligns with South Korea’s broader effort to strengthen regulatory controls in the rapidly evolving crypto landscape and offers a glimpse into how governments might tackle similar issues in the coming years.
The Plan for Cross-Border Crypto Oversight
To address these concerns, the South Korean government plans to enforce strict reporting mandates for businesses that facilitate cross-border crypto transactions.
In an October 24 report by Korean news outlet Edaily, Choi explained that under these new rules, any business handling international crypto transfers will be required to pre-register with the relevant authorities.
These businesses will need to report all cross-border transactions to the Bank of Korea on a monthly basis. This approach allows authorities to monitor these transactions more closely and detect any unusual or suspicious patterns early on.
By implementing these tough reporting requirements, South Korea hopes to prevent tax evasion and other financial crimes that have become prevalent in the crypto sector.
As Choi noted, cross-border crypto transactions have remained a “blind spot” for tax and customs services in South Korea. Criminals often take advantage of this regulatory gap, evading detection and making illegal profits by using crypto assets as a means of currency manipulation or concealing illicit gains.
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The Scale of the Problem: Foreign Exchange Crimes Linked to Crypto
The new regulatory efforts come amid rising concerns over the increasing role of crypto in foreign exchange-related crimes. According to the Korea Customs Service, approximately 81% of foreign exchange crimes, valued at around $1.2 billion since 2020, are linked to digital assets.
This alarming figure emphasises the urgent need for oversight in this sector and highlights the risk that crypto poses if left unchecked in a cross-border context.
Defining “Virtual Assets” and Laying a Legal Foundation
For these new regulations to be effective, the South Korean government must first establish a robust legal framework. Choi shared plans to introduce new definitions for “virtual assets” and “virtual asset business operators” under the Foreign Exchange Transactions Act.
These definitions will distinguish virtual assets as a separate category, different from foreign exchange, capital transactions, or external payment means. By clearly defining these terms, the government aims to create a solid foundation for enforcing the new reporting requirements.
Choi projects that the legal revisions necessary for implementing these mandates will be completed by mid-2025, with the reporting obligations to follow by the second quarter of that year.
A Broader Regulatory Effort: The Virtual Asset Protection Act
South Korea’s plans for cross-border crypto transaction oversight form part of a wider initiative to regulate digital assets more rigorously. On July 19, the country introduced the Virtual Asset Protection Act, which aims to provide a higher level of security for crypto investors in South Korea.
The law mandates that virtual asset service providers (VASPs) adhere to stricter safeguards to protect user assets. Key provisions include requirements for VASPs to maintain insurance coverage against hacks and malicious attacks, as well as to separate customer funds from exchange tokens.
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Additionally, the new regulations force VASPs to store customer deposits in banks and perform regular reviews of token listings on their exchanges. These rules ensure that investors’ assets are more secure and insulated from potential malpractices within crypto exchanges.
Enforcement and Penalties for Crypto Crimes
As part of its tougher regulatory stance, South Korea is introducing strict penalties for individuals and entities involved in crypto-related crime. The government plans to impose fines of three to five times the value of illegally acquired assets.
In cases of severe violations, perpetrators may also face jail time. This decisive action is intended to discourage the misuse of cryptocurrencies and enforce a standard of integrity within the industry.
