South Korea Eyes Sanctions For Unregistered Foreign Crypto Exchanges Operating Illegally

South Korean financial authorities are considering sanctioning and blocking access to multiple overseas crypto exchanges, including BitMEX and KuCoin, for allegedly offering their services to Korean customers without registration.

Overseas Crypto Exchanges Risk Sanctions

On Friday, local news media outlet Hangyung reported that South Korea’s Financial Intelligence Unit (FIU) of the Financial Services Commission (FSC) has identified multiple foreign crypto exchanges providing services to Korean customers without proper registration.

The financial authority found that many well-known overseas crypto exchanges, including BitMEX, KuCoin, CoinW, Bitunix, and KCEX, have not registered as Virtual Asset Service Providers (VASPs) despite targeting Korean users.

According to the report, the crypto platforms operate Korean-language websites or provide market and customer support activities targeted to Korean investors without notifying authorities or filing for a VASP license.

For context, under the Specified Financial Information Act, exchanges must formally register as a VASP with the FIU to obtain a license and be able to conduct business in the country, such as storage, brokerage, and management of crypto assets.

Failure to report to the financial authorities will make those platforms illegal businesses and subject them to criminal and administrative sanctions. The FIU, which is investigating these exchanges, has reportedly begun preparing measures, including blocking access to their platforms, while consulting with the relevant authorities.

In 2022, the FIU requested the Korean National Security Agency to block 16 overseas exchanges, including MEX, Poloniex, and KuCoin, for offering their services without registration.

The watchdog also cooperated with domestic card companies to block crypto-related purchases and payment services using credit cards in the country, which resulted in many exchanges withdrawing from the Korean market.

An FIU official stated the unit is “currently reviewing measures to block access to undeclared overseas exchanges that provide services to domestic investors in consultation with the Korea Communications Commission.”

Additionally, they “are strengthening communication between authorities by compiling data on damage cases and related data,” concluding that they “expect tangible measures to be taken within the year.”

Top Korean Exchanges Hit With Controversy

South Korean exchanges also made the headlines after recent reports alleged that Upbit and Bithumb intermediaries requested significant fees to list projects on their platforms.

According to Wu Blockchain, anonymous sources claim that various projects had “paid huge intermediary fees to have their tokens listed on South Korea’s largest cryptocurrency exchanges.”

The alleged fees were around $10 million and $2 million, respectively, with the intermediaries being “related to Upbit’s shareholders and market makers.” Some projects claimed to have “provided an intermediary fee ranging from 3% to 5% of the total token amount, and eventually managed to get listed on Upbit successfully.”

Nonetheless, the leading South Korean crypto exchange denied the allegations. On March 20, Upbit released a statement denying having received listing fees for trading support of specific crypto assets.

Upbit does not allow the involvement of external agencies to assist or intermediate trading support, and all procedures are conducted directly by Upbit employees. Therefore, if a specific company or individual demands intermediary fees while claiming to guarantee trading support from Upbit, please be advised that this is the act of illegal brokers unrelated to Upbit, and we ask for your special caution to prevent any damage from such actions.

Meanwhile, Bithumb also faces another crypto scandal after the South Korean policy raised its headquarters on Thursday.

As Bitcoinist reported, the company is under investigation for potentially violating financial laws following claims that the exchange’s former CEO, Kim Dae-sik, embezzled around $2 million to purchase an apartment for personal use.