The New York State Department of Financial Services (DFS) asked six South Korean banks and their New York branches to report on the current conditions of digital currency transactions in South Korea and their measures to prevent money laundering. It is very rare for the U.S. to make a request for business in South Korean branches. The U.S. seems to be concerned that virtual currency can be a loophole in financial sanctions on North Korea.
According to investment banking (IB) industry sources on Jan. 26, the New York DFS recently asked New York branches of six local banks, including Woori Bank, Industrial Bank of Korea (IBK), Shinhan Bank, KB Kookmin Bank, NH Nonghyup Bank and Korea Development Bank (KDB), to report on the current situation of cryptocurrency transactions in its main office and the result of on-site inspections conducted by the Financial Supervisory Service (FSS) and the Financial Intelligence Unit (FIU) to check whether they have fulfilled their anti-money laundering obligations.
An official from the IB industry said, “We have received an official letter through our New York branch. We are now considering whether it is ok to individually provide domestic data and six banks and the financial authorities will work together to deal with it.”
According to the official notice, the New York authorities made a request for domestic banks’ internal guidelines and regulations, including real name verification for digital currency transactions and the detailed result of the South Korean authorities’ investigation into anti-money laundering measures. It is extremely unusual for the U.S. to request domestic data. The U.S. government is also very interested in the South Korean government’s special measures for cryptocurrency investment.
In particular, the U.S. is paying attention to domestic banks’ internal control system as it is keeping an eye on the possibility of North Korea engaging in money laundering. In fact, the U.S. government and the British government said that North Korea was behind the so-called WannaCry attacks in December last year, which affected hundreds of thousands of computer systems across 150 countries to generate income through bitcoin ransomware payments. In addition, there a rumor that North Korean hackers hacked the South Korean bitcoin exchange YouBit which filed for bankruptcy after being hacked twice last year.
In this regard, Sigal Mandelker, the US Treasury's under secretary for terrorism and financial intelligence who is in charge of financial sanctions on North Korea, visited the Financial Services Commission (FSC) on the 25th. She labeled North Korea as the rogue regime and said, “We are mobilizing all our capabilities to collapse North Korea’s illegal financial networks.”
Mandelker, who suddenly cancelled a press conference scheduled on the 25th, had a private meeting with FSC vice chairman Kim Yong-beom to discuss ways to cooperate in preventing money laundering through virtual currencies. Kim said, “We explained thoroughly about our government’s measures to prevent money laundering via digital currency transactions.” It is still unclear whether they talked about North Korea’s money laundering issues as well.