Exchanged Coins Worth '2.6 Billion Dollars' Transferred to Greater China via Banks

Financial Supervisory Service Q&A on Abnormal Foreign Exchange Remittance Transactions in Banking Sector
Out of 3.37 Billion USD Transactions, 2.5 Billion USD Sent to Hong Kong
Domestic Companies Involved Include Precious Metals and Travel Industries
Most Have Short Business History and No Sales or Capital
Who Traded Coins at the Exchange Remains Unclear

On the 27th, Lee Joon-soo, Deputy Director, explains the progress of the bank inspection related to large overseas remittances at the Financial Supervisory Service in Yeouido, Seoul.
[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] On the 27th, the Financial Supervisory Service (FSS) announced the inspection status related to large overseas remittances recently raised in the banking sector. The funds mostly flowed out to Hong Kong and China through hundreds to thousands of remittances conducted by various newly established corporations, starting from domestic virtual asset exchanges. Many of the domestic corporations involved had representatives in special relationships or had little capital and sales. (Reference: Is the company representative who sent the money a cousin? ... Suspicious '4 trillion won' foreign exchange transactions in the banking sector) The complex fund flow process and key issues were summarized in a Q&A format.

Suspicious Foreign Currency Remittance Process of Domestic Companies

Q. What are the imported goods items of the involved companies?

There are travel businesses, cosmetics, and wholesale and retail-related items. There are also precious metals and semiconductors. They are distributed diversely.

Q. Is it true that import payments were made without letters of credit?

It is correct that most were made using an advance payment method that does not require letters of credit. The advance payment method allows transactions with just an invoice. In trade transactions, the advance payment method is used between companies with long-standing trade relationships and strong trust. It is understood that most of the transactions in this case were conducted using such a method.

Q. Is there any problem with sending large amounts of foreign currency without letters of credit?

The recent major trend in trade transactions is almost transactions without letters of credit. Letter of credit transactions account for about 15-20%. Most are advance payment methods. It is difficult to judge the issue solely based on whether there is a letter of credit or not.

Q. Among the transaction entities, which company accounted for the largest share?

We cannot disclose specific company names. The largest company is in the precious metals handling industry. Although it is an estimate, there are aspects that make it difficult to consider it a normal trading company.

Q. What is the proportion of transaction structures 1 and 2, and how much of the commercial funds are in transaction structure 2?

In the case of transaction structure 2, based on Woori Bank, there are two places where commercial transactions are mixed. Approximately 400 billion KRW. About 220 billion KRW came from virtual asset exchanges, and 180 billion KRW was commercial transactions. Some of these were sent overseas, some were remitted to domestic corporations, and the rest are difficult to confirm.

Identity of Overseas Companies Receiving Foreign Currency Remittances

Q. To which countries do the overseas corporations receiving remittances belong?

Based on Woori Bank and Shinhan Bank, Hong Kong is the largest, about 2.5 billion USD. Next is Japan with 400 million USD, the United States with 200 million USD, and China with 100 million USD.

Q. Are there cases where the owners of overseas corporations and foreign corporations are the same?

It is outside our scope, so we do not know.

Q. It is said that transactions were concentrated on specific overseas corporations; what kind of companies are they?

We cannot identify the overseas corporations precisely, but it has been confirmed that they are not virtual asset exchanges. They are general companies.

Q. Is there a possibility of realizing profits through hawala (informal money transfer)?

Hawala is illegal foreign exchange trading. It requires collusion between parties in Korea and overseas, especially among operators. However, this is under the jurisdiction of the Korea Customs Service. The overseas part is not under our jurisdiction, so we cannot know about the hawala part.

Who Exchanged Coins at the Virtual Asset Exchanges?

Q. So, do you not know who exchanged virtual assets at the exchanges?

That is correct. The FSS tracks the source of domestic funds. We traced this, but we cannot do everything up to the exchanges. Therefore, we were able to track funds through the exchanges and banks that opened real-name verification accounts. We do not know about what happened before that.

Q. How many virtual asset exchanges are involved?

It is difficult to disclose. However, multiple exchanges are involved.

Q. Even excluding Woori Bank and Shinhan Bank, there are about 2 billion USD in foreign exchange remittances. Are most of the other banks also linked to coins?

The total is 5.37 billion USD, and these transactions need to be examined. It is difficult to conclude that all these transactions are abnormal foreign exchange transactions. Assuming that, the issue is how much virtual asset trading is involved. In previous cases, all were linked to virtual assets. We think a significant portion of the rest is also virtual asset trading. Of course, this needs to be confirmed.

Financial Authorities' Responsibility and Countermeasures

Q. Could the FSS not inspect or prevent internal controls related to foreign exchange remittances?

The Foreign Exchange Supervision Department identified the situation around April last year, when the Kimchi Premium trading was presumed to be active, and requested banks to comply with procedures, legal processes, anti-money laundering, and the Special Act on Reporting and Using Specified Financial Transaction Information (Special Act on Virtual Assets) in transactions related to virtual assets. Through such monitoring and inspections, we believe they demanded adherence to risk management and work procedures in the market. Nevertheless, such evasive transactions occurred in the market.

Q. What are the countermeasures for these foreign exchange remittance issues?

Banks will be strengthened to strictly comply with the Foreign Exchange Transactions Act and legal obligations when handling remittance transactions. If necessary, effective monitoring of many transactions will be required. From the perspective of bank employees, if screening for risky transactions becomes more sophisticated, it will be effective. Including this, we will consider whether it is possible to fundamentally block such transactions institutionally.

Responsibility of Banks Involved in Foreign Exchange Remittances

Q. Did banks fulfill their key responsibilities and obligations during foreign exchange remittance processes?

The inspection is ongoing, so procedural flaws need to be confirmed through Q&A with employees. Final confirmation is required before guidance can be provided.

Q. Are there internal control issues in banks?

It is necessary to diagnose comprehensively after the inspection. There are an enormous number of foreign exchange transactions, and the Foreign Exchange Transactions Act does not have a system that perfectly extracts all abnormal transactions.

Q. There are rumors that verbal reports were made from banks other than Shinhan Bank and Woori Bank?

No official reports have been made to the FSS by other banks. Verbal reports are baseless rumors.

Q. You said it is difficult to consider the precious metals company as a normal company; did banks fail to inspect this?

This is a scenario. Newly established companies are usually the main inspection targets. Normally, reported sales exist. If, upon review, the store is unclear, the office exists but is opaque, yet many remittances occurred, and large amounts were sent by a company with little capital and low sales, it would prompt a need for verification. What we expect is that bank branches, under the Anti-Money Laundering Act, check for reasonable suspicion and documents at least to confirm whether there is a problem or something unusual. If banks made such efforts, we consider they have done their part.

This content was produced with the assistance of AI translation services.