Korea closer to legislating criminal punishment for crypto irregularities

Financial Services Commission Chairman Koh Seung-beom. Korea Times file

By Lee Kyung-min

Financial authorities are seeking to punish criminally those involved in illicit cryptocurrency trading, in a move to rein in the thriving digital asset market that remains tax-free, despite investors' hefty gains over the past few years.

The first step toward legislation is expected to expedite the discussion on the need for prompt recognition of digital currencies as valid financial assets, establishing grounds for the government to impose a tax on gains from crypto trading as scheduled.

According to a report submitted by the Financial Services Commission (FSC) to the National Assembly National Policy Committee, a minimum prison term of one year and a fine of up to five times the amount illicitly gained will be in store for those engaged in crypto market manipulation.

The report will be used as a basis for the establishment of a law that governs the crypto market. Illicit gains are defined as those made from price manipulation schemes and the use of undisclosed information orchestrated and participated in by people in the business of the trade, mediation, storage and management of digital currencies.

The prison term will be at least five years if the amount is 5 billion won ($4.2 million) or greater. The term will be at least three years if the amount is between 500 million won and under 5 billion won. A minimum of a one-year prison term will be in order if the amount is under 500 million won. The fine will be at least three times the illicitly gained amount, however small.

The FSC plans to set up an association of crypto businesses, as a self-regulatory measure for crypto exchanges and coin issuers to resolve disputes. The responsibilities of the envisioned entity will include the management of the public information disclosed by its members, and the referring of suspected fraud or other irregularities to law enforcement authorities for prosecution.

Financial market participants believe that the crypto industry is closer to being recognized as a valid market player, alongside banks and insurers.

Meanwhile, the move comes amid gridlock at the National Assembly over whether to postpone the taxation on crypto trading gains set to take effect next year.

The finance ministry says that a 20-percent tax should be imposed on gains of over 2.5 million won made from cryptocurrency trading in a one-year period. The previously agreed upon date for the tax to take effect, Oct. 1, had been pushed back due to a lack of taxation infrastructure.

Both the ruling and opposition parties are calling for a delay of the date of the imposition of the tax by at least one year. They say that the minimum amount deductible should be significantly increased to 50 million won, granted to those who net gains from investments in stocks and funds with at least 60 percent of the portfolio invested in stocks.

This politicized debate will become a major voting issue ahead of the presidential election next year for people in their 20s and 30s who have invested heavily in digital assets.

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