South Koreans might be on the front line. The government, media, and regulators increased the scrutiny of the banks’ role in enabling kimchi premium dealers to profit quickly when trading volumes increase. Last month regulators intervened to alert banks about their failure to prevent traders from using wire transfers to buy tokens like bitcoin (BTC) overseas. Traders then try to sell for a handsome profit on domestic cryptocurrency exchanges.
Retail investors’ trading volumes have skyrocketed in response to recent increases in BTC prices. As a result, there are price differences of up to 50% between domestic platforms like Upbit and international platforms like Binance.
By purchasing BTC from over-the-counter sellers some opportunistic traders have attempted to profit from such price discrepancies. Most of these people are based in Japan, Hong Kong, and Mainland China. Foreign exchange trading is already subject to tight laws in South Korea, and officials there have compared it to money laundering.
The FSS has been aware of potential problems for more than a year, according to Energy Kyungjae, which cited anonymous banking industry sources. The FSS has also previously notified most domestic banks about potential infractions. The media outlet further stated that the agency had “many times” in 2021 reiterated its warnings.
The regulator reportedly sent confidential warnings to Kookmin Bank, KEB Hana Bank, and Nonghyup Bank in addition to the aforementioned Woori and Shinhan. All five banks apparently received instructions from the FSS in 2021 “to be wary about arbitrage trading aimed at the kimchi premium.”
But further investigation appears to have uncovered a network of dubious-looking businesses that some have speculated might have been utilized by international participants to launder money.
The Financial Intelligence Unit (FIU) has discovered information regarding “dozens of anomalous transactions” involving an unnamed Daegu-based company as well as related incidents involving potential shell or “paper” companies with locations throughout the nation.
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