Unregulated and questionable foreign currency transfers involving digital currencies have exploded this year in South Korea. According to data from the country’s tax agency, the country has seen a 2,100% year-over-year increase in these transfers, raising concerns about money laundering and tax evasion via digital currencies.
In the first eight months of the year, Korea recorded more than KRW 812 billion ($ 677 million) in these transfers. Data from the Korean Customs Service showed that these transfers via digital currencies accounted for 68% of the 1.19 trillion KRW ($ 1 billion) of suspicious transfers of foreign currency in August. This is a 21-fold increase from activity in 2020.
In South Korea, these foreign currency transfers have been a constant challenge for regulators. Without any form of surveillance, they have been used by money launderers, tax evaders, drug traffickers and people involved in gambling overseas, reports the Korea Times.
Regulators across the country have taken steps to curb this practice in recent months. One of the most important measures has been the requirement that all digital currency exchange offices register users with real name accounts issued by commercial banks. This requirement, which is enforced by the Financial Services Commission, has seen a significant number of exchanges restrict their services, remove tokens from the list, or shut down altogether.
Representative Song Jae-ho of the ruling Democratic Party of Korea told parliament that the government is aware of the challenges these unregulated channels pose to Korea’s financial system.
“We are aware of the growing need to deepen discussions on how to regulate the virtual asset market to improve consumer protection regardless of the volume of their investments,” he said.
The lawmaker noted that one of the reasons for the increase in these transfers is the kimchi bonus. It is about the price difference of digital assets between foreign and local exchanges. This has led to a booming market in which traders buy these assets elsewhere and resell them in Korea at a profit. At one point, the kimchi premium hit 30%.
The lawmaker added: “Fluctuations in value also led speculative forces to flourish in a short period of time. The increase in volatility due to the value of the business linked to that of virtual assets requires legislative pressure for greater protection of users in the virtual asset market.
As Parliament struggles to push through legislation that protects investors, it is still engaged in a battle with the country’s finance ministry over when the 20% tax should be imposed. Lawmakers, especially those in the opposition party, are pushing to postpone the tax to 2023, but the government is not backing down in its efforts for the previously scheduled application date of January 1, 2022.
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