Violators of crypto law in South Korea now risk receiving fines up to five times the amount of illegal funds, or life imprisonment.
The Financial Services Commission (FSC) of South Korea has announced stringent provisions in the country’s new crypto law that will punish crypto criminals with varying sentences, including life imprisonment. According to a press release published Wednesday, violators could receive fines up to five times the amount of illicit funds or at least one year behind bars.
Korea Crypto Law Includes Varying Fines and Prison Sentences
The press release adds that people guilty of illicitly earning more than 5 billion Korean won ($3.76 million) may receive fines double their earnings. Violators may also be imprisoned for life.
The punishments are provisions in the country’s Virtual Asset User Protection Act. Last June, parliament passed the legislation, which included 19 individual crypto bills, clarifying definitions for cryptocurrencies and specifying punishments for violations. The act gives the FSC authority over crypto operators and custodians and allows the Bank of Korea to probe these platforms for misconduct. Highlighted violations include fraudulent transactions, market manipulation, and refusal to disclose details about cryptocurrency investments.
The law requires crypto service providers to protect users by keeping more than 80% of all deposits in cold storage. In addition, these providers must purchase insurance policies that compensate users if a security breach occurs.
The act governs cryptos considered securities with provisions in South Korea’s Capital Market and Financial Investment Business Act. At the time, the act was criticized for fusing traditional compliance specifics with the crypto market. The new law is expected to take effect from July 19.
South Korea decided to tighten its cryptocurrency laws after TerraForm Labs assets Luna and TerraUSD both collapsed in 2022. Users saw at least $40 billion worth of assets completely wiped out. Eventually, TerraForm Labs founder Do Kwon was arrested in Montenegro last March while trying to leave the country with forged documents.
Reviewing Crypto Regulations
As part of efforts to shore up cryptocurrency law, South Korea plans to consult with the United States Securities and Exchange Commission (SEC). Recently, the country’s Financial Supervisory Service unveiled plans for the year, including visits to major financial markets. One of the proposed visits will take officials to New York to meet with SEC Chair Gary Gensler to discuss spot Bitcoin exchange-traded funds (ETFs). The Financial Supervisory Service’s report admits the agency’s interest in the spot Bitcoin products because its approval has impacted markets worldwide.
While the Financial Supervisory Service seems interested in spot Bitcoin ETFs, the FSC has a different opinion. Following the US SEC’s approval, the FSC published a statement warning local firms that involvement in “overseas-listed Bitcoin spot ETFs may violate the existing government stance on virtual assets and the Capital Markets Act.”
Currently, the law in South Korea does not allow financial institutions to develop or launch crypto ETFs. The FSC is unwilling to change that, with an official confirming the country’s position on the matter. In addition, the Capital Markets Act has provisions that limit investment products like ETFs to fiat and other assets. Currently, there is no provision for crypto versions of these products. However, the agency is looking into a review of current rules.
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