South Korea Targets OTC Market Amid Multi-Billion Scandals

In light of a surge in illicit activities associated with the over-the-counter (OTC) crypto trading market, South Korea is increasing its regulatory scrutiny. Financial regulators in this tech-forward nation are actively delving into the largely unregulated domain of OTC crypto trading in the Asian country.

The report claims a sense of urgency to establish concrete regulatory measures amid mounting concerns regarding possible abuse in money laundering and other illegal endeavors. 

Increasing Pressure On OTC Crypto Exchanges

In a discussion titled “Criminal Legal Issues Related to Virtual Assets,” key regulatory authorities such as Deputy Chief Prosecutor Ki No-Seong and the Financial Services Commission’s Park Min-woo emphasized the potential dangers of the unregulated OTC crypto sector, according to local news sources.

Mr. Ki No-Seong emphasized the critical nature of regulating alleged illicit OTC crypto entities. These companies, often operating from foreign territories, facilitate unauthorized conversion of virtual currencies into the Korean won or other global currencies, according to No-Seong.

The predominant issue is that these entities function without official registration, circumventing established trading business norms in South Korea.

Unlike official exchanges recognized by the government, the OTC crypto market operates in the shadows. According to the report, while leading regulated crypto platforms in South Korea, such as Upbit, deal with roughly 192 digital currencies, OTC platforms have a roster of up to 700.

These platforms, including peer-to-peer (P2P) exchanges, allow users to transact beyond the purview of established regulatory platforms.

Cases That Catalyzed The Call For Stricter Regulation

Illicit transactions via OTC platforms haven’t gone unnoticed. One prominent case the report highlighted involved the International Crimes Investigation Department of the Incheon District Prosecutors’ Office.

Three individuals were apprehended and indicted for engaging in unauthorized foreign exchange operations from October 2021 to October last year.

These individuals had allegedly acquired digital currency worth $70.9 million (94 billion won) from foreign OTC platforms on behalf of Libyan clients. The assets were subsequently liquidated into cash within Korean borders.

The extent of these illicit dealings isn’t limited to isolated incidents. The Korea Customs Service offers a more extensive picture, estimating unlawful foreign exchange transactions via digital currency to be $4 billion (5.6 trillion won) in 2022.

Particularly, the Customs data reveals that the total value implicated in financial misdeeds surged from 3.2 trillion won ($2.5 billion) in 2021 to 8.2 trillion won ($6.2 billion) the following year.

Nearly 70% of the illicit financial activity tracked by officials involved crypto transactions. Interestingly, according to the report, the sum of seized digital currencies, totaling $4.3 billion, originated from just 15 transactions.

These operations were primarily designed to buy overseas digital assets to sell them later domestically, capitalizing on South Korea’s regulatory environment, which often results in elevated prices for foreign cryptocurrencies for local buyers.

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