Home > News > South Korea: 3 Crypto Exchanges Raided Over Diverting Customers’ Money

South Korea: 3 Crypto Exchanges Raided Over Diverting Customers’ Money

south korea crypto raid

South Korean police have raided three crypto exchanges that are suspected of buying cryptocurrency with money diverted from customers’ accounts, local media reports. The three companies appeared on authorities’ radar during an investigation into suspected dubious money transfers in January. The crypto exchanges were raided this week.
The embezzled money was used to buy Bitcoin elsewhere

A local daily, Chosun Ilbo reported that the money embezzled from customers was used to purchase Bitcoin. Executives and staff allegedly diverted money from their customers’ accounts into their own and then used the funds to buy bitcoin from other crypto exchanges.

Prosecutors from the Seoul Southern District Office searched the companies’ offices from Monday to Wednesday this week. Authorities say they will also be trying to figure out whether or not the three crypto exchanges have raised funds through defrauding potential investors. Mobile phones, accounting files, hard disks, and transfer receipts were confiscated by authorities during the raids.

“The companies appeared on our radar during an investigation on suspicious transfers of money between crypto exchanges in January,” one prosecutor explained. The FIU (Financial Intelligence Unit) and the FSC (the Financial Service Commission) conducted a joint audit during which the dubious transactions were detected.

Fraud and Theft amid Stringent Regulations

South Korean financial watchdogs have over the past few months tried hard to control the local crypto industry. Early this year, they implemented a new mechanism that is set to curb anonymous crypto trading. The mechanism will be used to enforce real-name identity verification on all crypto traders. The Financial Intelligence Unit and the Korean Financial Services Commission recently conducted inspections in the country’s leading commercial banks, mainly targeting the accounts of crypto traders. Banks were ordered to suspend issuance of “virtual accounts” that crypto exchanges use to manage their customers’ funds.

However, regulating and controlling crypto activities in the country is turning out be a tough task. Officials have previously complained about having limited authority within the current legal framework. In spite of this, Seoul District authorities have recently announced even more stringent requirements for firms offering crypto exchange services. The requirements include strict measures against crypto-related malpractices. South Korea has some of the world’s largest providers of crypto exchange services.

In January 2017, the South Korean Fair Trade Commission through its chair admitted that “in reality, it was impossible” to close crypto exchanges as one media source had previously reported. The commission’s chair made these comments at a time when an investigation on thirteen major trading platforms was underway. The investigations were reportedly triggered by alleged e-commerce law violations.

This new development is expected to trigger more stringent regulations from the country’s top financial regulators. In the meantime, the local cryptocurrency sector is taking steps towards self-regulation with about 25 companies offering cryptocurrency services taking part in proactive efforts that are led by the South Korean Blockchain Association. The findings from the investigations and the raid seem to be a win for South Korean authorities in their efforts to control crypto activities in the country.

There is something wrong with the API