South Korea Intensifies Crypto Exchange Crackdown with Raids and Reviews
By: Isha Das
South Korean authorities have recently intensified their scrutiny on crypto exchanges, with a significant raid on Bithumb, a leading cryptocurrency exchange. Prosecutors from the Seoul Southern District conducted a search of Bithumb's headquarters in Yeoksam-dong on March 19, following allegations that the company’s former CEO, Kim Dae-sik, misused corporate funds. The inquiry revealed that a 3 billion won ($2.3 million) lease deposit was allegedly used by Kim to purchase a personal apartment in Seoul's upscale Seongsu-dong district. This investigation has raised concerns over Bithumb's governance, particularly as it prepares for an anticipated initial public offering (IPO) in 2025. Bithumb’s current CEO, Lee Jae-won, has emphasized structural reforms to mitigate legal risks and expressed commitment towards the IPO, aligning with their vision to list on the stock market.
Despite Kim reportedly repaying the funds borrowed from an external lender, prosecutors are investigating the legality of the initial transaction, scrutinizing potential financial regulation breaches. This raid on Bithumb is not an isolated incident, as it comes amidst broader regulatory assessments on South Korea's crypto sector targeting corporate governance and financial practices. The diligent monitoring follows separate allegations suggesting that Bithumb and Upbit, another major exchange, facilitated token listings through intermediaries who charged exorbitant fees ranging from $2 million to $10 million per project. These allegations hint at ties between intermediaries and shareholders or market makers, augmenting the critical regulatory atmosphere surrounding cryptocurrency exchanges in South Korea.
In conjunction with the Bithumb investigation, South Korean authorities have also set their sights on exchanges like KuCoin and BitMEX. The Financial Intelligence Unit (FIU) under the Financial Services Commission is deliberating sanctions against these exchanges, suspecting them of operating without proper registration as Virtual Asset Service Providers (VASPs) in accordance with the Specified Financial Information Act. This ongoing crackdown highlights the South Korean government’s focus on maintaining rigorous compliance within the crypto industry, addressing potential loopholes and reinforcing the need for transparency and adherence to financial regulations.
The expansive investigation into the crypto exchanges operating without VASP reports emphasizes South Korea’s dedication to ensuring regulatory compliance. The financial regulators are determined to enforce the Specified Financial Information Act to protect the integrity of its financial markets and shield consumers from malpractices. This comprehensive evaluation by the FIU is expected to significantly impact how domestic and international exchanges manage their operations, signaling tighter control on the crypto economy moving forward.
