Virtual Asset Transactions Over 10 Million Won Must Be Reported... Experts Say "No Practical Benefit"

Seminar Hosted by Min Byungdeok's Office of the Democratic Party of Korea

Debate over FSC’s Amendment to the Specific Financial Information Act

"Insufficient Anti-Money Laundering Effect"

Experts have expressed concerns that the recently announced amendment to the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information, which aims to overhaul the anti-money laundering (AML) framework for virtual assets, would result in greater losses, such as capital outflows and increased burdens on users, rather than tangible AML benefits.

Han Seohee, an attorney at Kwangjang Law LLC, stated at the seminar titled 'The US Stablecoin AML Regulatory Framework and Issues in Revising Korea's Act on Reporting and Using Specified Financial Transaction Information' held at the National Assembly on May 12, "Although this system was introduced for the purpose of anti-money laundering, it cannot necessarily be said to be advantageous for AML."

The Financial Services Commission issued a legislative notice in March for an amendment to the Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information. The core of the amendment is to strengthen AML obligations related to virtual asset transfers, including expanding the scope of the travel rule (mandatory provision of sender/receiver information in virtual asset transactions), mandatory automatic suspicious transaction report (STR) filing for transactions over 10 million won, mandatory refusal of transactions when information is not provided, and restrictions on deposits and withdrawals from personal wallets.

On the 12th, at the National Assembly Members' Office Building in Yeouido, Seoul, participants including Min Byungduk, a member of the Democratic Party of Korea (center bottom row), took a commemorative photo at the seminar titled 'The US Stablecoin AML Regulatory Framework and Issues in Revising Korea's Act on Reporting and Using Specified Financial Transaction Information.' Photo by Oh Kyumin

Attorney Han pointed out that the mandatory automatic STR filing is the most significant issue. According to the amendment, whenever a user transfers more than 10 million won to an overseas virtual asset service provider or a personal wallet, domestic exchanges must automatically treat this as an STR and report it to the Financial Intelligence Unit (FIU). She argued that it is unprecedented to mandate automatic reporting based solely on transaction amount without "reasonable grounds" as required by the Financial Action Task Force (FATF) standards or Article 4, Section 1 of the Act. She further warned that, ahead of the amendment's implementation, there is a high likelihood that users will move their domestic assets en masse to overseas exchanges, where regulations are relatively lax, or to personal (non-custodial) wallets that are harder to track. This could result in domestic operators losing competitiveness and in a regulatory arbitrage effect, where capital flows escape the monitoring network of the financial authorities.

Attorney Han illustrated her point with a hypothetical scenario: "If a user transfers one Bitcoin to an overseas exchange, the transaction amount is 14 million won. To avoid the 10 million won automatic STR threshold, the user may split the transfer into approximately 15 installments of 9.9 million won each." She continued, "If the user simply waits to be subject to STR, there will be a waiting period for the STR to be processed, and enhanced customer due diligence will be required." Han pointed out that "Legitimate users may be classified as suspicious solely due to the automatic STR, resulting in significant costs and delays for legitimate transactions." She also stressed that the introduction of automatic STR filing will likely lead to an increase in "smurfing," where transactions are split into smaller parts to avoid detection, and users will incur duplicate fees in the process.

On the 12th, Min Byungduck, a member of the Democratic Party of Korea, is speaking at the seminar titled 'The United States Stablecoin AML Regulatory System and Tasks for Revising Korea's Act on Reporting and Using Certain Financial Transaction Information' held at the National Assembly Members' Office Building in Yeouido, Seoul. Photo by Oh Kyumin

Other experts also argued that mandatory automatic STR filing is excessive. Jeong Sanghoon, Vice President of Jeonbuk Bank, acknowledged the importance of anti-money laundering but emphasized that it should not cause undue inconvenience to users or infringe upon their legitimate property rights. He added, "In the process of large-sum remittances, the repeated procedures could consume a great deal of time. Given the highly volatile nature of the market, this exposes users to significant risks from price fluctuations, undermining consumer protection—the very essence of regulation—and could result in financial losses for users."

Hwang Seokjin, a professor at the Graduate School of International Information Security at Dongguk University, also emphasized the excessive inconvenience to users. Professor Hwang explained, "In the case of an STR, the exchange must call the customer to ask where the funds originated and requires the customer to write at least five lines explaining the rationale for the transaction. If the exchange cannot contact the customer, the transaction must be suspended, but it is questionable whether this is practically feasible." He continued, "Law-abiding users will have to repeatedly explain the source of their funds, and restrictions on asset transfers could amount to an infringement of property rights."

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