Three cryptocurrency exchanges in South Korea have been raided and investigated for money laundering allegations and illicitly seizing user funds.
South Seoul Prosecutor’s Office and its financial investigation team along with local law enforcement agencies, Financial Services Commission (FSC) and financial authorities have conducted a search operation with a warrant issued by the court.
Local police revealed that three cryptocurrency exchanges in South Korea allegedly seized user funds to purchase cryptocurrencies like bitcoin and Ethereum without the authorization of users. While local police stated it is still difficult to provide an exact amount of funds moved illicitly by the three exchanges, it noted that investigators remain certain illegal activities have been conducted over the past few months.
Chosun and Yonhap, two of the leading mainstream media outlets in South Korea, reported that employees within the three exchanges illegally obtained user funds stored in the bank accounts operated by the trading platforms to securely manage fiat balances of users, and used them to invest in cryptocurrencies for personal gains.
A spokesperson for the South Korean police told Chosun that the Korea Financial Intelligence Unit (FIU) and FSC engaged in a joint investigation to evaluate and analyze the bank accounts operated by both large-scale and minor cryptocurrency exchanges within the country.
“In January 2018, FIU and FSC conducted a joint investigation to explore suspicious transactions and money transfer records demonstrated by the bank accounts owned by local cryptocurrency exchanges. During the investigation, both agencies discovered suspicious activities,” the spokesperson said in a statement translated at LiveCoinWatch.
A local source familiar with the matter who asked to remain anonymous due to the sensitivity of the issue told LiveCoinWatch that one of the three exchanges currently being investigated by local police and the FSC is one of the big three exchanges in South Korea. At the time of reporting, Bithumb, Korbit, and UpBit remain as the three biggest cryptocurrency trading platforms in South Korea.
The source also explained that apart from the illicit seizure of user funds and assets, several exchanges are being investigated for money laundering allegations, and are said to have processed transactions for criminal organizations within the country.
Since early 2017, the South Korean government has cracked down on anonymous and borrowed bank accounts, which criminal organizations have actively utilized to finance illicit activities and operations for many years. Consequently, South Korean banks have also made the process of obtaining bank accounts significantly harder, even for citizens and permanent residents.
Currently, in South Korea, it is not possible for citizens to obtain bank accounts without submitting proof-of-income, and it is especially difficult for individuals that do not have contractual work as full-time employees.
The three cryptocurrency exchanges that are being investigated by local police and financial authorities are unlikely to receive a major punishment or fine, given that their employees independently and allegedly scammed users, as there exists no evidence that the exchanges led the illicit operations to seize user funds.
It is also illogical to accuse of cryptocurrency exchanges in South Korea of seizing user assets, given that many of the leading exchanges have recorded a pure profit of over $200 million in 2017. It is unreasonable to believe that trading platforms would risk multi-billion dollar valuations to obtain tens of thousands of dollars in user funds.