The government's "special enforcement period" stems from a new crypto-related law that took effect this year.
The South Korean government will crack down on “illegitimate crypto businesses” as well as all forms of money laundering and scams that involve cryptocurrency.
The Office for Government Policy Coordination (OPC) announced the enforcement Monday. The authorities are targeting all “illegal activity involving virtual assets” during a “special enforcement period” from April to June. The “enforcement” is related to a crypto-related law that went into effect earlier this year.
The OPC statement is a declaration that various state agencies will be given the authority to investigate, monitor and punish crypto businesses, or virtual asset service providers (VASP). The state will also determine in the coming months which VASPs are legit and which will be deemed illegal. The law requires VASPs to register with financial authorities, which sounds simple but the screening process is expected to be rigorous.
The decision to implement such a crackdown was made on April 16 during an OPC-led meeting with representatives of various government institutions, including the Ministry of Economy and Finance, the Ministry of Science and ICT, the Justice Ministry and the National Police Agency (NPA).
The Financial Services Commission (FSC) has the authority to monitor all inflows and outflows of cryptocurrency. The FSC’s Financial Intelligence Unit (FIU) will analyze data from exchanges and report any suspicious transactions to prosecutors, police investigators and the national tax service.
Last month, the FSC issued a “warning” to crypto traders to “check the registration status” of exchanges, advising them to use only exchanges that are “sustainable in the long term.” This was read by industry insiders as a de facto declaration that many VASPs will be declared illegitimate and shut down.
The government is also keeping its eye on arbitrage trading. Because South Korea’s kimchi premium has soared to as high as 22% in recent weeks, some traders have been sending money abroad to purchase crypto in exchanges outside South Korea, which they send back to Korean exchanges to sell and profit off the premium. The Ministry of Economy and Finance and the Financial Supervisory Service (FSS), which is under the FSC, are currently working to determine whether such arbitrage trading violates the country’s foreign exchange laws.
South Korea has been the scene of a string of pyramid schemes and scams involving crypto. Many of these scams extract cash and crypto deposits from victims by promising them extravagant returns and interest on investments. CoinDesk reported on similar scams in Nigeria.. The NPA is expected to establish a separate department for investigating such crypto-related crimes.
But the legal oversight doesn’t stop there. The Fair Trade Commission, South Korea’s antitrust authority, will begin reviewing the user agreements of exchanges to determine whether or not they violate fair trade laws. Many in the local crypto community agree that most exchanges probably won’t survive the oncoming regulatory onslaught, leaving only a few giants to monopolize the market.
The Korea Communications Commission, which is modeled after the Federal Communications Commission in Washington, has been tasked with monitoring online activity for illegal crypto trading. The Personal Information Protection Commission, directed by the Office of the Prime Minister, will investigate VASPs’ personal data protection systems. The government plans will also begin building the infrastructure to enforce crypto tax laws that will go into effect in January 2022.
Koo Yoon-cheol, head of the OPC, said in the announcement that “nobody can guarantee the value of virtual assets, meaning virtual asset trading is more speculative than it is an investment.”
“With the recent scams, pyramid schemes, and other illegal activity we’ve seen, traders must be extremely careful,” he warned.