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- The Financial Action Task Force (FATF) updated its guidelines on financial transactions involving digital assets in October 2018, adding the terms virtual asset (VA) and virtual asset service provider to the list of terms (VASP)
- Korea’s Anti-Money Laundering-related law, the Act on Reporting and Using Specified Financial Transaction Information, was recently amended and went into effect on March 25, 2021, in accordance with the FATF’s guidance, which recommends a risk-based approach to the regulation of virtual assets and VASPs
- The KoFIU said that it will take measures, including banning access to such VASPs’ websites, and that such VASPs would discontinue their commercial operations aimed at Korean customers as of Sep 25, 2021
Because of their anonymity or pseudonymity, digital assets are thought to pose a danger of money laundering and terrorism funding. The Financial Action Task Force (FATF) updated its guidelines on financial transactions involving digital assets in October 2018, adding the terms virtual asset (VA) and virtual asset service provider to the list of terms (VASP). The FATF has taken a risk-based approach to VA activities and operations, as well as VASPs, since then. This new strategy incorporates VASP oversight to guarantee license and registration compliance, as well as preventative measures including client due diligence, transaction reporting, and record-keeping. It also includes the monitoring of VASPs in order to prevent money laundering and terrorism funding. As a result, penalties and other enforcement actions, as well as international collaboration, are more effective. As a result, VASPs have the same full set of responsibilities as financial institutions.
Korea’s Anti-Money Laundering-related law, the Act on Reporting and Using Specified Financial Transaction Information, was recently amended and went into effect on March 25, 2021, in accordance with the FATF’s guidance, which recommends a risk-based approach to the regulation of virtual assets and VASPs. VASPs must register their business with the Korea Financial Intelligence Unit (KoFIU) before starting operations, and existing firms that qualify as VASPs must do so within six months, or by September 24, 2021. VASPs will also be subject to other AML responsibilities upon registration, including confirming their clients’ identities and filing reports on questionable transactions. From the time of their company registration, the financial authorities will undertake inspections of VASPs and oversee their compliance with AML regulations.
VASPs are defined as virtual asset trading service providers, virtual asset safekeeping and administration service providers, and virtual asset digital wallet service providers who engage in the purchase/sale, exchange or transfer, safekeeping/administration, or intermediation and brokerage of some virtual asset transactions under the act. The revised statute further stipulates that any offshore operation conducted outside of South Korea that has domestic repercussions or impacts is subject to the act. As a result, the KoFIU has notified 27 offshore VASPs with commercial activities targeting consumers in Korea that they must register with the KoFIU by September 24.
Whether non-Korean VASPs’ business operations are considered to be targeting users in Korea is likely to be a fact-specific determination based on factors such as whether they provide Korean-language translation services on their platforms, whether they engage in advertising and marketing activities aimed at Koreans, and whether they offer transactions and payment services. Offshore VASPs that have not received notification from the KoFIU but have business operations targeting Korean users must register with the KoFIU or cease their business activities targeting Korean users beginning September 25. If offshore VASPs subject to the registration requirement do not register with the KoFIU by September 25, their operations will be considered unlawful business activities.
The KoFIU said that it will take measures, including banning access to such VASPs’ websites, and that such VASPs would discontinue their commercial operations aimed at Korean customers as of September 25. Exchange operators will face up to five years in prison or a maximum punishment of $43,500 if they continue to conduct their company without registering, as stipulated under the legislation. The KoFIU stated that they would also file charges with investigative authorities, such as prosecutors and the police, against unregistered offshore VASPs, as well as actively seek other options in criminal matters, such as close cooperation with non-domestic financial intelligence units and international judicial mutual assistance.
In this situation, consumers may suffer losses if they use services offered by unregistered VASPs since they may be unable to withdraw their cash or virtual assets. As a result, users should examine the business registration status of relevant VASPs (that target Korean users), seek information on their resident registration numbers, and take proactive measures, such as withdrawing their funds or virtual assets, if required, to avoid any potential losses. So, what are the conditions that VASPs must satisfy in order to register with the KoFIU? They must obtain an Information Security Management Systems (ISMS) certification from the Korea Internet and Security Agency (KISA), as well as use real-name bank accounts for money remittance between the VASPs and their users unless the VASPs do not receive money from their users and no money is exchanged for virtual assets.
The Financial Services Commission, Korea’s financial regulator, announced on July 22 that no offshore VASPs had yet received an ISMS certification. Separately, the FSC published the findings of extensive checks into the validity of VASP deposit accounts on July 28. It was discovered that 79 VASPs had 94 deposit accounts as of the end of June, 14 of which were related to fraudulent or fake account activity. Accounts connected to fraudulent or fake activity are anticipated to be suspended by financial institutions. Using the suspicious transaction reports, the KoFIU will notify the appropriate law enforcement agencies in any cases involving money laundering or other illegal acts. Financial regulators will continue to closely monitor deposit accounts owned by VA, according to the FSC.
By examining their current marketing and distribution channels, settlement currencies, and translation service, offshore VASPs should determine whether they fall within the scope of offshore VASPs subject to the registration requirement under the amended act (i.e., whether they may be deemed to be targeting users in Korea). Offshore VASPs who want to aggressively promote their service to Korean consumers after September 24 should think about their company structure and examine the KoFIU’s registration requirements, among other things.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
