FIU Judged "Kim Nam-guk's Coin Transactions Suspicious"... What Is the Content?

Prosecutors: "Would FIU Notify If Unrelated to Crime?"
FIU Specializes in Monitoring Money Laundering
Swift Action Taken Upon 'Suspicious Transactions' Detection

Suspicion of virtual currency investment involving Kim Nam-guk, a member of the Democratic Party of Korea, is expanding. Although Representative Kim has denied any illegal involvement, the prosecution believes there is cause for suspicion as the Financial Intelligence Unit (FIU), which specializes in investigating financial crimes, has requested an investigation.

Democratic Party of Korea lawmaker Kim Nam-guk, who has been embroiled in controversy over holding virtual assets, is entering his office at the National Assembly Members' Office Building in Yeouido, Seoul, on the morning of the 9th. [Image source=Yonhap News]

A representative from the Seoul Southern District Prosecutors' Office said on the 9th regarding Kim's suspicion, "It seems that the FIU analyzed the case from various angles based on its own judgment criteria," adding, "Would the FIU notify investigative agencies if it were completely unrelated to a crime?" This indicates that when the FIU reported Kim's suspicious transactions to the prosecution, it considered there to be criminal suspicion and submitted related materials. They also announced plans to reapply for a warrant on Kim's accounts.

The FIU is an organization under the Financial Services Commission that specializes in detecting money laundering. Financial institutions must immediately report to the FIU if they suspect illegal financial transactions under the Suspicious Transaction Report (STR) system. Virtual asset service providers are also required to report to the FIU, which holds strong authority.

The FIU particularly views virtual currencies as a hotbed for money laundering. Although domestic virtual currency exchanges operate through banks' real-name accounts, tracing the flow of funds becomes difficult once the blockchain, which guarantees anonymity, is involved. Continuous transactions between personal wallets or accounts and specific external wallets or accounts, or an excessive number of transactions within a short period, are classified as "suspicious transactions" and are promptly addressed.

In Kim's case, it is presumed that the FIU judged the suspicious transactions to potentially warrant criminal punishment and requested an investigation by the prosecution. Transactions exceeding 10 million KRW are automatically reported to the FIU, but Kim explained that the cash withdrawn via ATMs from January to March last year, around the presidential election, was only 4.4 million KRW. During this period, large amounts of virtual currency, not cash, were moved, and the FIU appears to have investigated the legality of these transactions. Generally, the FIU considers suspicious transactions that may lead to criminal punishment as follows.

'Kimchi Premium' Arbitrage Seeking

[Image source=Yonhap News]

The "Kimchi Premium" refers to the price difference of virtual currencies between domestic and overseas exchanges, where the same virtual currency may have different prices depending on the trading trends of each country or exchange. If Bitcoin is cheaper on overseas exchanges than on domestic ones, the method involves sending cash overseas to purchase Bitcoin and then transferring the virtual currency back to Korea.

However, failing to report foreign exchange or failing to clarify the purpose of remittance constitutes a violation of the Foreign Exchange Transactions Act. If the violation amount exceeds 1 billion KRW, criminal penalties such as imprisonment or fines may be imposed. The Seoul Regional Customs Office of the Korea Customs Service uncovered illegal foreign exchange transactions related to virtual currencies amounting to 2.0715 trillion KRW between February and August last year, arresting 16 individuals.

Money Laundering Leading to Illegal Activities

Financial authorities pay close attention to cases where money laundering is used to facilitate illegal activities. On the 9th, Yoo Sang-beom, a member of the People Power Party, appeared on a radio show and said, "Virtual currencies are naturally connected to the stock blind trust system," adding, "In reality, virtual currencies are often used as a means to conceal funds from illegal transactions and for crimes such as new types of financial fraud."

In fact, in January, the National Police Agency sent two Uzbek nationals to the Seoul Central District Prosecutors' Office on charges of money laundering through virtual currencies. They collected about 10 million KRW and sent it to overseas terrorist organizations through virtual currency dealers. To avoid detection of the remittance details, they purchased the virtual currency Tether (USDT) at a Hong Kong virtual currency exchange and then transferred it to the terrorist organizations, going through a money laundering process.

Manipulative Trading of Coins on Overseas Exchanges

Even remittances made to trade virtual currencies that are only available on overseas exchanges are flagged as suspicious transactions. Some virtual currencies, such as Pepe Coin, have shown volatility as high as 2200% in a month but are not supported for trading on domestic exchanges. This is because financial authorities are cautious about speculative risks and unearned income. Nevertheless, large sums are sometimes sent overseas to take advantage of such extreme volatility. Such actions may also violate the Foreign Exchange Transactions Act. In fact, in 2021, an international student identified as A was caught after sending 50 million yen (about 490 million KRW) overseas under the pretext of study funds and purchasing virtual currencies on overseas exchanges.

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