Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Sharp rise detected in illegal forex transactions via cryptocurrency purchases
A customer observes a Bitcoin price chart at a Bithumb customer center in Seoul, April 11. Newsis
By Lee Yeon-woo
Price discrepancy between domestic and foreign crypto markets exploited
More than 10 trillion won ($7.4 billion) has been channeled into illegal foreign exchange transactions over the past five years amid rising public interest in cryptocurrency transactions. Capitalizing on the price discrepancy between the domestic and foreign markets, individuals were found to have purchased cryptocurrencies from overseas markets and resold them in the domestic market for a profit.
This discrepancy, often referred to as the "kimchi premium" by domestic investors, arises because cryptocurrency prices in the local market tend to be higher than those in foreign markets. This is due primarily to a limited supply in the face of high demand here.
According to data from the Korea Customs Service obtained by Rep. Koh Yong-jin of the main opposition Democratic Party of Korea, the cumulative amount identified in illegal foreign exchange transactions related to cryptocurrency purchases reached 10.3 trillion won between 2018 and 2022.
"In 2022, a man who founded a ghost company under an acquaintance's name was discovered to have transferred a significant amount of money abroad, masquerading the transactions as purchases of imported goods for the company. Instead, he bought virtual assets in a foreign crypto market, and garnered 5 billion won in profits by reselling them in the domestic market. He was later apprehended by the Korea Customs Service," Koh said.
Of the detected cases, 6,066 resulted in penalties, with funds totaling 2.2 trillion won being confiscated.
The magnitude of these violations was especially large during the cryptocurrency investment boom. Particularly between 2020 and 2022, the violations accounted for 78.7 percent of all detected cases that resulted in penalties, with the seized sum representing 83.7 percent of the total.
The majority of the penalties were issued in cases where transfers were disguised as trade payments to purchase cryptocurrencies from overseas or to withdraw large sums of foreign currency from ATMs abroad.
During the same period, 93 cases were reported to prosecutors involving a sum of 8.7 trillion won.
In 2022 alone, the detected amount represented 70.3 percent of all cases that were reported to prosecutors.
Among the cases forwarded to prosecutors, overseas transfers disguised as trade payments made up the biggest portion again, accounting for 49.9 percent of the total. Violations related to foreign exchange business registrations came in second, accounting for 47.2 percent. Examples of such cases include individuals depositing money into a broker's account, with the broker offering repayment in a different currency, bypassing banks.
"Tax authorities should intensify their monitoring of illegal foreign exchange transactions related to cryptocurrency purchases and reconsider legislations pertaining to foreign exchange management," Koh said.