Priority in Cryptocurrency Regulations
As the South Korean government is seeking to impose a tax on cryptocurrency transactions, the financial authorities are also setting out to legislate regulations on a pyramid scheme fraud or money laundering through the medium of digital currencies, putting an all directional pressure. They are trying to keep distance from granting the legal nature to virtual currencies, including cryptocurrency exchange approval system, but to strengthen regulations on a frenzy in digital currency transactions itself.
According to the financial authorities on Jan. 30, the Financial Services Commission (FSC) is seeking to revise the Act on Similar Credit Receipt and the Act on Specific Financial Transaction Information, proposed by lawmakers, in order to impose legal controls on virtual currency transactions. An official from the financial authorities said, “Various crimes by the medium of digital currencies happen every day but there are no clear legal basis for penalties or restrictions. This is why we are trying to rapidly strengthen enactment through legislation by assembly members.”
First of all, the financial regulator is planning to create a clear legal basis of punishment for a pyramid scheme that attracts investors using fake digital coin or cryptocurrency mining investments for bait by revising the Act on Similar Credit Receipt. According to the data of the FSC, the number of similar receipt crimes related to virtual currencies requesting a police investigation surged to 38 as of last year from 23 at the previous year. Under the current law, however, it is hard to clearly decide on whether an act to attract investment through the medium of cryptocurrencies is a crime or not. In short, the act of similar receipt specifies “an agreement to pay the full or over the amount of investment in the future” but it is not hard to prove it considering the nature of digital currencies whose prices continue to fluctuate.
In addition, the financial authorities are planning to revise the Act on Specific Financial Transaction Information, including imposing the duty on exchanges to prevent money laundering. Currently, they are indirectly examining the risks of money laundering at exchanges through banks but they are to prepare a legal ground to directly investigate into exchanges in the future. They will also raise the limit of fines on money laundering from the current 5 million won (US$4,664) to 100 million won (US$93,284) as cryptocurrency transactions can be used to launder money from drug sales ad funds for terrorism. An official from the financial authorities said, “We are pushing ahead with legislation in order to establish a clear basis to punish illegal acts during digital currency transactions. It is not to recognize virtual currencies as financial products or exchanges as a type of financial business.”