[Invest&Law] Upbit, Bithumb, Coinone... Harsh Regulatory Winds Blow Through Cryptocurrency Exchanges

Dunamu Accused of Tax Evasion Scheme by Chairman Song Chi-hyung
Bithumb Grants Multi-Billion KRW Jeonse Deposit as Favor to Former CEO
Coinone Exposed for Sexual Misconduct and Listing Corruption

Yonhap News

Domestic virtual asset exchanges, including Upbit, have been swept up in a wave of investigations. As major shareholders and executives become targets of investigative authorities, previously hidden mismanagement and misconduct are coming to light. Prosecutors and other investigative agencies appear to be weighing the start of formal investigations based on intelligence gathered from cases related to these parties.

Special Tax Investigation on Upbit, Controversy Over Major Shareholders' Dividend Income Tax Evasion

On the 21st of last month, the Seoul Regional Tax Office conducted a search and seizure operation as part of a special tax investigation into Dunamu, the operator of Upbit. The investigation aims to verify whether Upbit attempted offshore tax evasion through its overseas affiliates. The focus is reportedly on the flow of funds with Upbit's Singaporean subsidiary, Upbit APAC. Upbit APAC also operates exchanges in Thailand and Indonesia, and the travel rule solution company VerifyVASP is part of the same affiliate group.

Tax authorities are concentrating on whether Upbit converted listing fees received in cryptocurrency into cash overseas, and whether Dunamu's founders, Chairman Song Chi-hyung and Vice Chairman Kim Hyung-nyeon, were involved in this process.

The noise surrounding Upbit's major shareholders related to taxes does not end there. A representative issue is the controversy over a scheme to evade dividend income tax. Last year, Dunamu held an extraordinary general meeting and converted 300 billion KRW of capital reserves into retained earnings. It is suspected that this conversion was used to avoid paying dividend income tax by utilizing the entire amount as dividend funds. The largest shareholders of Dunamu are Chairman Song (25.53%) and Vice Chairman Kim (13.11%), far exceeding institutional investors such as Kakao Investment (10.59%), Woori Technology Investment (7.20%), and Hanwha Investment & Securities (5.94%).

The industry interprets the conversion of capital reserves as a move to reduce the tax burden on major shareholders. Dunamu used all of its 2023 retained earnings as dividend funds. Chairman Song received 26.1 billion KRW and Vice Chairman Kim 13.4 billion KRW as annual dividends in 2023. Last year, they also received 26.1 billion KRW and 13.4 billion KRW respectively as interim dividends for 2024. If the funds prepared through the capital reserve conversion are used as dividend funds, their dividends in 2024 could increase to around 120 billion KRW.

Following a suspension of some operations due to violations of the obligation to prohibit transactions with unregistered virtual asset operators, imposed by the Financial Intelligence Unit (FIU), Dunamu CEO Lee Seok-woo and other executives and employees received warnings and severe disciplinary actions including dismissal.

There is also analysis suggesting that prosecutors may have started a preliminary investigation into Dunamu based on intelligence obtained in advance. On the 27th of last month, the Seoul Southern District Prosecutors' Office formally established a joint investigation team for virtual assets. Rumors circulate within and outside the prosecution that during investigations of politicians, prosecutors uncovered misconduct involving Dunamu's top executives.

Bithumb Provides Multi-Billion KRW Special Support for Apartment Jeonse Deposit

Bithumb has also not escaped scrutiny. According to comprehensive reporting by Legal Newspaper, Kim Dae-sik, a non-executive advisor and former CEO of Bithumb, received several billion KRW in the form of a loan from the company as a jeonse (long-term lease deposit) for a high-end apartment located in Seocho-gu. The issue is that Kim was already provided with a company residence at the Trimage in Seongsu-dong. The Financial Supervisory Service discovered this during an audit and reportedly requested an explanation, suspecting preferential treatment.

In response to the controversy, Bithumb reportedly recovered the full amount and interest and imposed personnel sanctions including suspension on the related executive through a personnel committee. However, since the personnel committee was convened only after the authorities' criticism and there was insufficient prior review of the large financial support, it is unlikely that Bithumb can avoid criticism for lax management. A Bithumb representative declined to comment, stating, "Since this is related to the Financial Supervisory Service's inspection, we cannot confirm."

Coinone Faces Sexual Misconduct and Listing Corruption... Internal Control Failures

At Coinone, there was a sexual misconduct case involving the Chief Product Officer (CPO). The executive was disciplined for repeatedly sexually harassing two female employees. However, controversy grew as the disciplinary actions were not publicly announced, and the opinions of the victims were not sought, revealing shortcomings in the investigation and follow-up measures.

There was also listing corruption. A former head of listings and a team leader at Coinone were each sentenced to four years and three years and six months in prison respectively, along with fines, for receiving approximately 2.7 billion KRW in bribes in exchange for listing certain coins. It was revealed that they accepted money and valuables in return for listing specific cryptocurrencies.

Woo Bin, Legal Newspaper Reporter

※This article is based on content supplied by Law Times.

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