South Korea has established an interagency investigative team to address the surge in cryptocurrency crimes in response to the escalating incidents of cryptocurrency-related offenses and the lack of legal safeguards for investors. The Joint Investigation Centre for Crypto Crimes, announced by the Prosecutor’s Office, will consist of approximately 30 members drawn from various judicial, financial, tax, and customs agencies.
Authorities have highlighted the pressing need for investor protection in the virtual assets market, asserting that despite the similarities between virtual assets and traditional investment products like stocks, market participants still need adequate legal protection due to the absence of comprehensive laws and systems. According to local Korean reports, until the crypto-currency market is formally regulated, this newly formed investigation team will play a crucial role in safeguarding investors’ interests.
South Korea’s crypto crimes
The situation has become alarming as cryptocurrency-related crimes have recorded an alarming 118% surge over the past five years in South Korea, amounting to a staggering 1.02 trillion won ($797.81 million) in damages in 2022 alone. These crimes encompass various illegal activities, including price manipulations, illicit foreign exchange transactions, and Ponzi schemes.
The newly formed investigative unit will focus on probing crypto-currencies that exhibit high price volatility or face delisting, aiming to uncover unlawful trading practices, tax evasion, unauthorized foreign exchange transfers, criminal profit concealment, and money laundering.
South Korea’s cryptocurrency market, once a rapidly growing entity, suffered a 66% contraction in market capitalization last year due to domestic and global events that dampened investor confidence, exacerbated by high-interest rates.
A significant catalyst for the need to address crypto crimes was the crash of the stablecoin TerraUSD and its counterpart, Luna, in May 2022. The incident prompted public outrage, as it was linked to an alleged fraud perpetrated by Do Kown, the developer of the currencies who had fled and was later apprehended in Montenegro, also facing fraud charges in the United States.
The rise in suspected crime-related transactions on local crypto-currency exchanges surged a staggering 1,263%, increasing from 66 cases in 2021 to 900 cases in 2022, underscoring the situation’s urgency.
South Korea’s government has been determined to take robust action to protect crypto investors. The National Assembly passed legislation, scheduled to take effect in July next year, to curb unfair trading practices and impose penalties, including prison sentences and fines, on those engaging in market manipulation, illegal transactions, and the use of undisclosed information.
With approximately 6.27 million Koreans participating in the domestic crypto market, holding a total market value of 19 trillion won ($14.8 billion) by the end of 2022, it is crucial to safeguard against the rising tide of crimes in the cryptocurrency sphere. The joint virtual asset crime investigation unit aims to significantly curb these offenses and restore confidence in the crypto market.
