Updated Crypto AML Rule in South Korea Set to Take Effect from 25th March

Richard Marley
March 24, 2021
2 minutes read
196

South Korea’s official financial regulatory body, the Financial Services Commission (FSC), announced that the updated rule mandating AML obligations on Virtual Asset Service Providers (VASPs) will come into effect on March 25, 2021.

The FSC initially called for cryptocurrency-based amendments to the country’s Anti-money Laundering (AML) framework in November 2020, in an effort to follow suit with the Financial Action Task Force’s risk-based approach to VASPs.

On 5th March, South Korea’s National Assembly also came onboard with the FSC’s proposal and voted in favour of the update. Soon after, government officials gave a green signal to the law at a cabinet meeting held on 16th March.

Thus, according to the revised “Enforcement Decree of the Act on Reporting and Using Specified Financial Transaction Information”, the following amendments need to considered by crypto companies:

Scope of VASPs

Any virtual asset service provider and virtual asset digital wallet service provider that is involved in the buying and selling, exchange and transfer, administration and safekeeping, intermediation and brokerage of virtual assets and virtual asset transactions.

Registration of VASPs

Virtual asset service providers are obliged to register their business with the KoFIU (Korea Financial Intelligence Unit) prior to the initiation of business operations. To avoid being subject to hefty penalties, existing businesses that pass as VASPs must register within 6 months (i.e. till September 24, 2021)

AML Obligations of VASPs

As of 25th March, 2021, registered virtual asset service providers need to comply with anti-money laundering (AML) regulations, such as the verification of customer identity, filing reports on suspicious transactions, etc. Once the business is registered, authorities will be carrying out thorough inspection and supervision on VASPs to ensure they stay in compliance with AML requirements.

Additionally, the updated rule regarding customer identity verification applies only to registered organizations. Therefore, the FSC has advised customers to stay vigilant of unregistered VASPs and refrain from providing them with sensitive information prior to checking the status of their registration.

Disclaimer: No warranty is herein provided that the information contained in this document is accurate, up-to-date, and/or complete. In no circumstance(s), does such information constitute legal or any other advice. Any person who intends to use, rely, pass-on, or re-publish the information contained herein in any way is solely responsible for the same. We suggest to verify the information and/or obtain expert advice independently if required.

Latest News

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Japanese Govt. to Enshrine FATF Crypto AML Standards into National Law
The Japanese government is getting ready to incorporate the Financial Action Task Force (FATF) crypto AML rules into national law after getting maximum votes from the country’s parliament in support of the initiative.

According to NHK, MPs supported the Revised Act on Prevention of Transfer of Criminal Proceeds in a voting that took place on Friday during a meeting of the House of Councilors. They favored the amendments to six other laws, including the Act on Freezing International Terrorist Assets, the Act on Punishing Organized Crimes, and the Act on Prevention of Transfer of Criminal Proceeds.

What Does AML Mean in Crypto?

Anti Money Laundering (AML) for cryptocurrencies means the rules and policies aimed at preventing criminals from turning unlawfully obtained cryptocurrencies into cash. Crypto exchanges that adhere to AML regulations boost customer trust and accountability, reduce the likelihood of financial fraud such as terrorist financing and money laundering, and contribute to market stability.

The measures would increase the legal consequences for offenses involving money laundering. Law enforcement will be able to freeze assets kept on domestic networks, including digital currencies such as bitcoin.

The media site stated that by requiring business owners who exchange crypto assets to reveal details about receivers, the legislative amendments would “make it easier” for law enforcement authorities and customs inspectors to trace cryptocurrency. As a result, cryptocurrency exchange transactions will no longer be anonymous.

Stablecoins, as well as their issuers, will be subject to the new restrictions imposed. The legal changes describe the types of warnings that should be sent to non-compliant parties as well as the heavy fines that courts should impose in judicial proceedings.

Suggested Read: Japan Revises Six Laws to Tackle Money Laundering in Cryptocurrency

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Surging Crimes in NFT Marketplaces - Setting New Security Standards Using Shufti Pro’s AML Solution
The emergence of Non-Fungible Tokens (NFTs) has created new investment opportunities for business tycoons and wealthy politicians. It is an entirely new concept that has attracted the attention of all technology giants and is undoubtedly one of the most discussed topics. It all started when in March 2021, artist Mike Winklemann sold one of his art as a digital asset for $69 million. This landmark sale has given rise to a new trend of creating attractive NFTs and selling them into the market for millions of dollars. NFTs are blockchain cryptographic assets that have unique identification codes. Unlike cryptocurrencies, they cannot be traded at the same level, which is the prime reason behind the huge investments pouring into the sector.

The global NFT market in 2021 was valued at $11.3 billion and is expected to reach $231 billion by 2030. The statistics clearly show how fast the NFT marketplace is picking up, which has eventually encouraged criminals to take part in fraudulent activities, particularly money laundering and terrorist financing. It is not more than a decade since NFTs have come into the mainstream, and during this short time, the authorities have remained unable to regularise them properly. Implementing Anti-Money Laundering (AML) measures in the sector is crucial to counter criminals and make it a secure place for investors.

NFT Marketplaces and Money Laundering Concerns

Money laundering has always remained a sensitive issue for global financial watchdogs. Especially after 9/11, law enforcement authorities encountered myriad cases of terrorist involvement in financing their illicit activities through money laundering. Since then, regulatory agencies have tried to enforce AML laws in the financial industry. Banks, insurance companies, art & antiquities, and the real estate sector are the ones that have implemented stringent AML measures which have urged criminals to find alternative options. Although regulated, the NFT marketplace still has a lot of loopholes, making it an attractive option for money launderers. It is estimated that since 2017, over $8 million of illicit funds have been laundered through NFTs, with the numbers expected to rise exponentially in the coming years.

The criminals are using illicit funds to buy digital assets, and due to a lack of laws, companies never ask them about their sources which ultimately lets them convert their illegal money into legit cash. Moreover, the whole marketplace is highly volatile, further aiding the bad actors in manipulating the prices and disguising their original wealth under digital assets. The Financial Action Task Force (FATF) and European Union (EU) have also raised grave concerns about addressing prevailing money laundering, encouraging countries to legislate laws for this crucial sector.

Money Laundering and Role of Law Enforcement in Securing NFTs

Due to the involvement of global financial watchdogs, all the major jurisdictions have taken drastic steps to curb money laundering in NFTs marketplaces. Not only the wealthy business tycoons but several gangs on a smaller scale are found to be involved in this heinous crime, and law enforcement authorities are working tirelessly to bring them under the law.

Here are some of the recent high-profile NFT crime cases observed in the United States:

NFT Sellers Charged in $1 Million Money Laundering Scheme

US law enforcement authorities have arrested two NFT sellers who were involved in selling fake digital assets to users and further laundering illegal money to other countries. Police have revealed that criminals were running a marketing campaign encouraging users to buy NFTs, and after a large number of sales, they shut down their website along with users’ digital assets. They managed to collect $1.1 million dollars from their customers and were trying to launder this money through cryptocurrency. Both scammers have been charged in court and are yet to be penalised.

HMRC Seizes NFT in £1.4m Fraud Case

The UK tax authority HM Revenue and Customs (HMRC) has arrested three people for attempting to make a fraudulent transaction of £1.4 million through NFTs. The law enforcement authorities have seized an NFT, and it has been termed to be the first-ever seizure of non-fungible tokens by the UK Police. All the criminals have been charged in court, and investigations are still going on to trace more illicit transactions linked to the case.

Global Regulatory Authorities Monitoring NFT Marketplaces

While the crime percentage in the NFT market is increasing with every passing day, the global regulatory authorities have also started taking the right action against the culprits. The Financial Action Task Force (FATF) and European Union (EU) are the leading bodies which have made a clear stance against prevailing money laundering activities through the NFT marketplace.

FATF’s Stance on Money Laundering Threats Posed to NFTs

Since 9/11, FATF is the primary regulatory organisation which has taken drastic steps to curb money laundering and terrorist financing in the economic system. FATF has highlighted the vulnerabilities of NFTs to financial crimes and guided all the Virtual Assets Service Providers (VASPs) to implement s security system based on Enhanced Due Diligence (EDD) measures. Moreover, it has also been made mandatory for the VASPs to get a license from the belonging country and track the financial activities of all their users. The guidance by the FATF is binding for all the member states, and failing to comply with them can even lead to their name being placed on sanctions lists.

The Role of European Union

Members of the European Parliament has vowed to fight money laundering by regulating NFTs, metaverse and the DeFi sector. The finance experts of the EU have asked all the member countries to track the transactions through blockchain and report to law enforcement authorities in case of any suspicious activity.

How NFT Sector can Ensure AML Compliance

Non-Fungible Tokens (NFTs) are actually working through the blockchain, which has a decentralised system, ultimately leaving the authorities to end up losing the criminals. The ideal way to counter the bad actors is through stringent measures during the onboarding. FATF and EU have formed sanctions lists having the record of a large number of money launderers and terrorist finances. The NFT sector should have a system where they can screen customers’ data against these lists and identify the criminals while reporting them to law enforcement authorities. Many financial institutions like banks and insurance companies are following the same practice, which has successfully countered bad actors.

What Shufti Pro Offers?

Eradicating money laundering and terrorist financing from the NFT marketplaces is quite crucial, which must be done to secure the platform for sophisticated users. NFTs are here to stay, and steps in the right direction can help the service providers counter criminals.

Shufti Pro’s AML screening solution is an ideal option for NFT marketplaces which can help them to meet global anti-money laundering compliance. Powered by an AI algorithm that is getting smarter over time, Shufti Pro’s AML solution has access to 1700+ global sanctions lists, and while screening data against them, it generates results in seconds with a ~99% accuracy.

Would you like to explore more about AML solutions for NFT marketplaces?

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