Customer Information Not Verified and Monitoring Standards Inadequate... FIU Inspects Virtual Asset Service Providers

[Asia Economy Reporter Lee Jung-yoon] An inspection of whether certain virtual asset service providers complied with anti-money laundering obligations revealed cases of illegal and improper conduct in customer information verification, suspicious transaction reporting, and internal control systems.

According to major illegal and improper cases related to anti-money laundering by virtual asset service providers announced on the 29th by the Financial Intelligence Unit (FIU) under the Financial Services Commission, deficiencies were identified in fulfilling anti-money laundering obligations such as customer verification duties, suspicious transaction reporting, and establishing internal control systems.

First, in the case of virtual asset service provider Company A, many customers' contact information and addresses were missing from the customer information management system. Additionally, unknown information such as special characters and names were entered in fields for transaction purpose and source of funds, effectively limiting customer information verification and money laundering risk assessment.

Under the current Act on Reporting and Using Specified Financial Transaction Information (the Specified Financial Transaction Information Act), virtual asset service providers are required to verify customers' identity information such as address and contact details. For users with a high risk of money laundering, transaction purpose and source of funds must also be verified. Failure to verify customer identity information or omission of identity information in the customer information management system may result in fines up to 30 million KRW, and up to 100 million KRW for high-risk customers.

There were also cases where the actual owner of corporate customers was not verified. Company B regarded the second-largest shareholder, not the largest shareholder, as the actual owner when verifying corporate customers. As a result, it failed to confirm whether the largest shareholder, the actual owner, was involved in money laundering.

Insufficient criteria for monitoring suspicious transactions were also pointed out. Company C, which had established and operated its own suspicious transaction extraction criteria, did not verify the validity of some criteria even though no suspicious transactions were extracted for several months.

There were also cases where monitoring of suspicious transaction subjects was not properly conducted. Company D did not review or report additional activities of suspicious transaction customers, citing that it had reported once to the FIU. Failure to report suspicious transactions or properly fulfill customer verification duties may result in fines up to 30 million KRW each.

A company that failed to conduct a money laundering risk assessment before listing a new cryptocurrency was also detected. Company E started supporting transactions without conducting a prior money laundering risk assessment for the newly listed cryptocurrency. Service providers must prepare and keep documentary evidence of the money laundering risk assessment, and failure to conduct such assessment before supporting transactions may result in fines up to 100 million KRW.

It was also found that a company listed a cryptocurrency issued by a related party without verification. Company F did not verify whether the issuing foundation of the cryptocurrency it supported was a related party. Virtual asset service providers must establish and implement standards to restrict brokerage, mediation, or agency of trading or exchange of cryptocurrencies issued by related parties in accordance with the current Commercial Act. They must also verify whether the issuing foundation and key executives of the listed cryptocurrency qualify as related parties. Failure to restrict handling of virtual assets issued by related parties may result in fines up to 100 million KRW under the Specified Financial Transaction Information Act.

An FIU official stated, "We will continue to periodically disclose major illegal and improper cases to encourage virtual asset service providers to establish and implement proper anti-money laundering systems."

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