South Korea is imposing stricter regulations on cross-border cryptocurrency transactions to fight tax evasion and financial crime. Finance Minister Choi Sang-Mok said at a G20 meeting in Washington that the government would raise the transparency level of international crypto transactions. Aiming to fill regulatory gaps, these transactions are a weak point in the country’s tax and customs systems.
Under the proposed regulations, businesses must register with authorities and provide monthly reports of transaction details to the Bank of Korea regarding cross-border crypto transactions. The new crypto flow reporting rule will allow the government to receive a more detailed report on crypto flows, giving them more time to monitor activity to prevent illegal trading. Authorities are committed to these measures to curb criminals using cryptocurrencies for money laundering, tax evasion, and currency manipulation.
Choi says the government would have to provide a clear legal framework to implement the new rules, which he expects will be done by mid-2025. This plan allows virtual assets to be expressly defined separately from foreign exchange transactions as a separate form of foreign capital transactions. These legal changes are expected to be finalized in early 2025, allowing the regulations to take effect in the second quarter.
New Reporting Mandate for Crypto Firms to Ensure Compliance
South Korean regulations require all businesses handling cross-border crypto transactions to register with the authorities. Pre-registering allows companies to provide transaction transparency and will enable authorities to see when and where money laundering or tax evasion occurs. Businesses must also regularly submit monthly reports to the Bank of Korea to comply with the new standards.
The approach is to fill in gaps in current crypto oversight through a proactive approach, with cross-border transactions similarly treated on a case-by-case basis.
“Since criminals can prey on low enforcement to enjoy illegal financial transactions, it is necessary to establish standard monitoring here,” Choi said.
According to the Korea Customs Service, digital assets comprised 81 per cent of crimes committed through foreign exchange and totalled some $1.2 billion since 2020, prompting a call for harsher oversight.
A global trend of tightening cryptocurrency regulations with more countries acknowledging crypto’s role in cross-border financial crimes is very much reflected in South Korea’s strategy. South Korea’s dedication to addressing cryptocurrency problems and enhancing its regulatory policy encourages such new requirements. Authorities want to build more accountability in the crypto market and protect the country’s economic system as regulations shape.
Updated Legal Definitions in Foreign Exchange Transactions Act
The South Korean government will introduce new definitions under the Foreign Exchange Transactions Act to better categorize and monitor virtual assets. This change will clarify the legal status of virtual assets and the businesses that help manage them. Virtual assets can be redefined as assets for separate entities to better monitor cross-border crypto transfers.
The new definitions will help South Korea define virtual assets with a clear legal structure compared to other financial assets. They will enable it to establish a solid legal framework for virtual assets. By addressing cryptocurrency’s unique challenges and risks in the economic system, this is to do so. The government said this will help provide greater certainty and consistent treatment of cryptocurrency regulation across all sectors.
This will help the government penalize noncompliance, too, and it will act as a strong enough deterrent against illegal activities. South Korea’s proactive measures are part of a long-term strategy to make the country’s crypto ecosystem more secure. Through this legal update, the government has committed to justice to realize a balanced regulatory approach toward a better financial environment.
South Korea recently passed the Virtual Asset Protection Act, which enforces stricter rules on virtual asset service providers (VASPs) to protect users. This legislation requires VASPs to separate user assets from exchange-owned tokens, deposit customer funds in banks, and obtain insurance against cyberattacks. Additionally, VASPs must regularly assess token listings to ensure transparency and user protection.
