The battle against crypto crime in South Korea has shown that the anti-money laundering system has considerable loopholes in the country.
The exchange between Korean and Cambodia surged 1,400 times in 2024 and the relationship revealed the lack of oversight and the absence of enforcement authority over cross-border transactions of digital assets.
Aldo readies suspicious transfers to Cambodia
Bithumb and Upbit are the leading exchanges in the country and the two conducted the most flagged transactions last year. Bithumb processed approximately 12.4 billion won ($9 million), and Upbit had 366 million won ($271,000). The transfers have been ordered to Huione Guarantee, which is a Cambodian marketplace accredited by the United States and the United Kingdom. The majority of the money transferred in USDT stablecoins, which is the currency of choice in cross-border transactions.
Legal expert Youchull Jung of Lee & Ko said regulators are under significant challenges when trying to identify illicit activity on a real- time basis. It is in the nature of suspicious report and transaction blocks to arise at some stage when money is already in motion. He further stated that stricter enforcement in South Korea has made scammers move to other places such as Cambodia and the Philippines where the criminal networks are more difficult to identify.
Cryptocurrency cross-border transfer legal gray zones
The increasing market of digital assets in South Korea, with a market size of $73 billion, spread among the leading exchanges, has placed the country as an international crypto hub. Nevertheless, its current legal framework is finding it hard to cope. Cryptocurrency is not identified as a legitimate payment method in the Foreign Exchange Transactions Act, which was passed in 1999. This loophole confuses the regulating bodies and use by both the regulators and users.
Jongbaek Park, an attorney based in Bae, Kim, Lee said that the transfer of crypto internationally can technically violate foreign exchange regulations without disclosure to the Bank of Korea. He observed that at the same time regulators enhanced national regulations on the basis of the 2024 law of digital assets, there is nothing similar to cross-border regulation, which is outdated and weak.
Banks are the gatekeepers to Crypto market
The 2021 AML Act changed the exchange situation in South Korea, in which 60 people used to be operators, now there are only five. It is these exchanges which got the real-name verified bank accounts required to transact in Korean won. Tae Eon Koo, a fintech lawyer at Lin Law Firm, stated that the system would provide high AML and KYC protection at the expense of competition.
The banks have become market gatekeepers. Every bank is only allowed to open one verified account per exchange, and the small operators are barred. Certain exchanges have accused the regulators of reverse discrimination, stating that foreign exchanges such as Binance have fewer obstacles due to the acquisition of licensed domestic platforms.
The return of Binance could change the market forces
This was recently altered with Binance re-enlisting in South Korea with regulatory backing given by KoFIU to acquire a majority stake in GOPAX. Experts add that such a step can undermine the power of Upbit and Bithumb, changing the domestic market landscape.
Koo indicated that the re-entry of Binance will add liquidity, experience, and worldwide recognition, but the extent of that will be determined by whether GOPAX is able to tap into the Binance global order book.
The Korean South can reinstate AML compliance and simultaneously promote healthy competition, which will dictate the integrity of the market of digital assets in the future.
