Kwon Gi-won is the Director of the Legislation Office at D&A LLC
More operators are running virtual-asset businesses without reporting to South Korea’s Financial Intelligence Unit, in violation of the Act on Reporting and Using Specified Financial Transaction Information, commonly known as the Specified Financial Information Act.
Despite the FIU’s hard-line enforcement through ongoing monitoring, user tips and cooperation with related agencies, information encouraging use of unreported operators — including false or exaggerated claims such as guaranteed high returns — continues to spread through blogs, open chat rooms and social media.
In a news release issued earlier this month, the FIU detailed the risks posed by illegal operators, common types of crypto-related illegal activity and its planned actions. It also said any virtual-asset operator not reported to the FIU is an illegal business.
Specified Financial Information Act requires FIU reporting by virtual-asset businesses
Under the Specified Financial Information Act, a virtual-asset business operator — including anyone seeking to operate such a business — must report to the FIU chief: information about the filer; the representative and registered executives; major shareholders; the types of activities to be conducted; information on real-name verified deposit and withdrawal accounts; the organization, staffing, IT systems and internal controls for complying with virtual-asset laws; and information on information-security management system certification (Article 7(1) and Enforcement Decree Article 10-11(1) and (2)).
Under the Act on the Protection of Virtual Asset Users, a “virtual-asset business operator” means a person who, as a business, buys, sells, exchanges, transfers, stores or manages virtual assets, or brokers, arranges or acts as an agent for those activities (Article 2(2)).
The reporting duty also applies when an overseas operator does business targeting users in South Korea (Article 6(2)). If an operator violates the duty and conducts virtual-asset transactions as a business without reporting, it may face up to five years in prison or a fine of up to 50 million won (Article 17(1)).
FIU identifies illegal operators and notifies investigative authorities
The FIU news release listed 27 virtual-asset business operators reported to the agency and confirmed that all other unreported operators are illegal under the Specified Financial Information Act. It said the FIU notified investigative authorities about 27 unreported operators, and warned that any operator not reported to the FIU may be in violation.
The FIU said illegal operators are not subject to financial regulators’ management and supervision and may lack adequate anti-money laundering and user-protection systems. As a result, users who trade through illegal operators may have difficulty obtaining relief for financial losses.
Common types of crypto-related illegal activity
The FIU grouped recent illegal activity by unreported operators into three categories and provided examples.
First, anonymous stablecoin exchanges through Telegram or open chat rooms. Promoting stablecoin trading in KakaoTalk open chat rooms and similar channels violates the Specified Financial Information Act.
Second, promoting or brokering unreported operators through blogs or social media, including referrals. The FIU said providing referral links on internet blogs while promoting a specific crypto exchange — where users receive fee discounts by entering a referral code and the referrer receives a portion of fees — violates the law.
Third, using currency-exchange shops to conduct “hwan-chigi,” an informal remittance scheme using virtual assets. The FIU said if a remitter sends fiat currency to an overseas accomplice, the accomplice sends an equivalent amount of stablecoins to a domestic exchange operator, and the domestic operator deposits the stablecoins, the conduct may violate the Specified Financial Information Act and the Foreign Exchange Transactions Act.
What virtual-asset users should know
By presenting the three categories, the FIU warned that such conduct can amount to transactions with a virtual-asset business operator committing a Specified Financial Information Act violation.
However, the offense applies when a “virtual-asset business operator” violates Article 7(1) by failing to report and conducts virtual-asset transactions “as a business,” meaning the threshold question is whether the party qualifies as a virtual-asset business operator.
The Supreme Court has said that determining whether someone is a virtual-asset business operator conducting transactions “as a business” requires examining whether the person repeatedly and continuously conducts virtual-asset transactions for profit. It said the assessment should reasonably consider, under social norms, the purpose, type, scale, frequency, duration and manner of the transactions, in light of the amendment’s intent to bring virtual-asset operators into anti-money laundering and counter-terror financing systems. The court also held that ordinary users who repeatedly buy or exchange virtual assets only through an exchange for their own benefit are generally unlikely to be considered virtual-asset business operators absent special circumstances, while those who repeatedly conduct transactions for the convenience of an unspecified number of customers or users and receive compensation in return can, in principle, be considered operators (Supreme Court ruling dated 2024. 12. 12, 2024Do10710).
Whether an operator has “business” characteristics is likely to be the key test, but users may find it hard to know that in advance. In peer-to-peer transactions, prices change in real time, making it difficult to determine whether one side obtained “compensation.” Some also argue that strict regulation may not help establish fair and transparent trading order while the operator definition remains unclear.
Anyone handling or trading virtual assets should closely watch financial authorities’ policy direction and proactively review, in advance, whether FIU reporting is required.
▲ Visiting professor, Institute for Far Eastern Studies, Kyungnam University ▲ Former visiting scholar, Woodrow Wilson Center ▲ Former expert adviser, National Assembly Defense Committee ▲ Former senior expert adviser, Science, ICT, Broadcasting and Communications Committee ▲ Former senior expert adviser, Foreign Affairs and Unification Committee ▲ Adviser to Ajou Economy Law & P ▲ Director of the Legislation Office at Daeryuk Ajou (D&A) LLC ▲ Visiting professor, Department of Parliamentary Studies, Chung-Ang University
* This article, published by Aju Business Daily, was translated by AI.
Copyright ⓒ Aju Press All rights reserved.
