South Korea Takes Aim at OTC Market in Response to Multiple Billion-Dollar Scandals

**Regulatory Scrutiny Increases on South Korea’s OTC Crypto Trading Market**

In response to a surge in illicit activities associated with the over-the-counter (OTC) crypto trading market, South Korea is intensifying its regulatory oversight. Financial regulators in the country are actively investigating the largely unregulated domain of OTC crypto trading, prompted by mounting concerns about possible money laundering and other illegal activities.

Key regulatory authorities, including Deputy Chief Prosecutor Ki No-Seong and the Financial Services Commission’s Park Min-woo, discussed the “Criminal Legal Issues Related to Virtual Assets.” They highlighted the potential dangers of the unregulated OTC crypto sector. No-Seong stressed the critical need to regulate alleged illicit OTC crypto entities, which often operate from foreign territories, facilitating unauthorized conversion of virtual currencies into Korean won or other global currencies. These entities function without official registration, bypassing established trading business norms in South Korea.

The OTC crypto market differs from government-recognized exchanges, as it operates in the shadows. While regulated crypto platforms in South Korea, such as Upbit, handle around 192 digital currencies, OTC platforms offer up to 700. These platforms, along with peer-to-peer (P2P) exchanges, enable transactions beyond the purview of established regulatory platforms.

Several cases have catalyzed the call for stricter regulation of illicit transactions through OTC platforms. The report highlighted a prominent case involving the International Crimes Investigation Department of the Incheon District Prosecutors’ Office. Three individuals were apprehended and indicted for engaging in unauthorized foreign exchange operations from October 2021 to October of last year. These individuals allegedly acquired digital currency worth $70.9 million (94 billion won) from foreign OTC platforms on behalf of Libyan clients and liquidated the assets into cash within Korean borders.

The extent of illicit dealings extends beyond isolated incidents. The Korea Customs Service estimates that unlawful foreign exchange transactions via digital currency reached $4 billion (5.6 trillion won) in 2022. The total value implicated in financial misdeeds surged from 3.2 trillion won ($2.5 billion) in 2021 to 8.2 trillion won ($6.2 billion) the following year. Notably, nearly 70% of the illicit financial activity tracked by officials involved crypto transactions. Interestingly, the report reveals that just 15 transactions accounted for $4.3 billion in seized digital currencies. These operations primarily aimed to purchase overseas digital assets to sell them later domestically, taking advantage of South Korea’s regulatory environment, which often leads to higher prices for foreign cryptocurrencies among local buyers.

As South Korea confronts the growing challenges posed by the OTC crypto trading market, increasing regulatory scrutiny becomes paramount. Concrete measures are necessary to combat money laundering and other illegal activities associated with this largely unregulated domain. Establishing stricter regulations and fostering cooperation with international counterparts could help mitigate the risks and steer this market towards greater transparency and accountability.


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J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

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