Surge in Crypto Laundering Spurs Push for Stricter KYC and Exchange Oversight
SEOUL, Oct. 16 (Korea Bizwire) — South Korean police say recent criminal investigations have exposed a growing use of virtual assets to launder the proceeds of large-scale frauds, reigniting debate over the need for stronger oversight as authorities and industry consider expanding the use of digital currencies, including won-pegged stablecoins.
The Ulsan Police Agency disclosed this month that a Cambodia-based romance-scam ring converted victims’ remittances into cryptocurrencies and funneled the funds abroad through a domestic network that took roughly 10 percent in fees.
Investigators said the syndicate laundered about 18 billion won in a single month last December. In July, prosecutors in Daegu arrested a separate group that converted some 4.4 billion won obtained through voice-phishing into crypto and transmitted it overseas.
Police and analysts caution that these techniques — moving money from bank accounts to domestic exchange wallets, converting it into stablecoins such as Tether (USDT), and then shifting assets to foreign exchanges or private wallets — are now widespread and difficult to police.
A report from blockchain-analytics firm Elliptic cited lax customer-verification practices in many jurisdictions and warned that criminals are exploiting the relative anonymity of crypto ATMs and some virtual asset service providers to launder funds.
A stablecoin is a type of cryptocurrency that minimizes price volatility by pegging its value to a specific asset, most commonly the U.S. dollar. To maintain this value, stablecoins are backed by collateral, with U.S. Treasury bonds frequently used for this purpose. (Image courtesy of Yonhap)
The scale of cross-border flows complicates enforcement. Data reported by Rep. Park Soo-young of the ruling party show that, through September of this year, about 124.3 trillion won flowed from South Korea to overseas exchanges, while 123.5 trillion won flowed in the opposite direction — volumes that make it difficult for regulators to single out suspicious transactions.
International voices have voiced similar concerns. Shin Hyun-song, a senior official at the Bank for International Settlements, warned in August that stablecoins are increasingly used in financial crime, noting that by 2022 such activity had outpaced other crypto crimes and accounted for roughly 63 percent of related incidents last year.
Industry participants say criminals also rely on private exchangers charging high fees to convert cash into crypto for transfer into overseas personal wallets, a tactic that further hinders traceability. “If funds are converted at a private exchanger and sent directly to a foreign personal wallet, detection is effectively much harder,” one industry source said.
The emerging picture has heightened urgency around proposals to broaden digital-asset use in South Korea — including discussions about issuing a won-pegged stablecoin.
Critics argue that any move to expand the crypto payments ecosystem should be preceded by bolstered anti-money-laundering controls, enhanced know-your-customer rules and closer international cooperation.
Lawmakers and regulators are now under pressure to tighten monitoring of virtual asset flows and shore up rules for exchanges, private exchangers and wallet providers, even as proponents of digitalization press ahead with plans to widen the technology’s reach.
The debate underscores a central dilemma for policymakers worldwide: how to reconcile innovation in digital finance with the perennial need to deter sophisticated financial crime.
M. H. Lee (mhlee@koreabizwire.com)
