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The South Korean authorities have arrested two people for crypto transactions linked to “hwanchigi”, the practice of illegally transacting funds between South Korea and overseas.
On Tuesday, August 30, the South Korean customs authorities arrested 16 people involved in illegal foreign exchange transactions.
South Korean Customs Revealed Illegal Crypto Trading
Local news outlet Newsis reported that two of the 16 people are set to be prosecuted while seven have been filed for negligence. The probe for the remaining seven people still continues. During its investigation, the South Korean customs service found that over 2.7 trillion won ($2 billion) have been moved in illegal foreign exchange transactions since February 2022, related to cryptocurrencies.
As per the customs inspectors, a number of illegal foreign exchange transactions were related to offshore crypto exchanges. The officials also found that some of the individuals also created companies with illegal remittance agencies. Later, they disguised the trade proceeds from overseas buyers using domestic banks.
Lee Min-geun, director of the Seoul Customs Investigation Bureau said that there’s a greater possibility that these foreign exchange transactions might have violated the Foreign Exchange Transactions Act (FETA). As per reports, nearly 75% of the violations of the country’s FETA have involved cryptocurrencies.
Many of the transactions have been linked to “hwanchigi”. This is the practice of illegally transacting funds between South Korea and overseas. This “hwanchigi,” practice also has links to “kimchin premium” wherein cryptocurrencies trade at a greater price on Korean exchanges as compared to global exchanges.
Of the two persons prosecuted, Mr. A has been suspected of forming several ghost companies and sending funds abroad. But it turned out that Mr. A was importing cryptocurrencies from abroad and reselling them to South Korean investors at a higher price.
“Mr. B,” received 400 billion won ($298.2 billion) from 70 investors willing to buy cryptocurrency. Later, Mr. B would send the money back overseas as import trade proceeds.
Money Laundering in South Korea
Earlier this month, the South Korean authorities flagged 16 crypto firms operating in the country without proper regulatory approval. The Korea Financial Intelligence Unit (KoFIU), said that the firms had advertised digital assets and offered crypto services without getting the requisite licenses.
These firms for “illegal business activities” include popular exchanges like KuCoin, BitGlobal, Polonies, and others. Efforts from South Korean regulators to crack down on the industry have increased in recent months, especially after the crash in the crypto space.