South Korean Government to Implement Tracking for Cryptocurrency Transactions 

South Korean Government is looking to increase its oversight of the cryptocurrency market by tracking and monitoring transactions to cut down on crypto-enabled crime. 

Keeping an Eye on Investors

Earlier this week, Asian cryptocurrency news source Wu Blockchain reported that the Ministry of justice in South Korea had announced plans to create a cryptocurrency tracking system to counter crypto-enabled crime. 

The South Korean Ministry of Justice will introduce a "cryptocurrency tracking system" in the first half of this year to strengthen the tracking of money laundering and recovery of criminal proceeds using cryptocurrencies. https://t.co/2CLkaLUrX6

— Wu Blockchain (@WuBlockchain) January 29, 2023

Citing a report from a separate news source, the medium pointed out that the “Virtual Currency Tracing System,” as it is called, will monitor investors’ transactions and collect other user-identifiable information. 

Although the system is not expected to be operational until the second half of the year, the Ministry of Justice has reportedly confirmed plans to launch an independent analysis and tracking system down the line. 

A statement from the Ministry reads that these features are an important response to increased criminal sophistication. With this forensic tracking system, they hope to create a way to fight crypto-enabled crime that complies with international standards. 

Everyone’s Being Watched

The launch of a tracking service is just the latest in the efforts from South Korea’s government to clean up its crypto space. The country, which has been seeing increasing levels of crypto adoption, has also been working to ensure that transactions are legitimate and unrelated to any criminal activity. 

In October, local news sources reported that the Financial Services Commission (FSC), South Korea’s securities regulator, would commit to monitoring crypto whales with over 100 million won (about $70,000) in their holdings to prevent money laundering. 

As the securities watchdog explained at the time, having a larger proportion of cryptocurrencies and stablecoins automatically equates to a higher risk of money laundering. Thus, more focus needs to be placed on monitoring those crypto wallets with large amounts of traditional crypto and stablecoins in order to comply with anti-money laundering (AML) policies.

The FSC was especially critical of stablecoins, especially those commonly used by members of the public. In a statement, the agency claimed that many of these independently listed assets most likely haven’t met the listing criteria for other virtual asset operators. Thus, it can be evaluated that these assets pose a higher risk of money laundering and other forms of financial crime. 

Besides monitoring crypto whales and their financial activities, the report also advocates oversight of retail customers who make high-value deposits. These customers should be monitored to account for any significant changes in their holdings at least every quarter. 

The government has also quickly looked into cryptocurrency exchanges listing their native tokens. Following the collapse of the FTX exchange, the Korea Financial Intelligence Unit (KoFIU) reportedly investigated major crypto exchanges and brokers in the country, looking into those who had listed in-house, naively developed coins. 

Financial regulations in Korea prevent exchanges from listing their native tokens. However, while the investigation by the KoFIU noted that most exchanges had engaged in lawful activity, a spokesperson for the FSC also revealed plans for deeper investigations as they still had doubts concerning these exchanges and their compliance. 

Flata, a local exchange, was flagged for launching its in-house FLAT token in January 2020. The FSC spokesperson believes that there is still a possibility that several other small exchanges had violated these listing rules, especially considering that investigations have focused primarily on the country’s major brokers.