Bithumb’s sanctions hearing for 'breach of AML law' set for the 16th… could it top Upbit’s 'KRW 35.2bn' fine?

Number of transactions with unregistered operators a key factor in determining penalty severity

More transactions with unregistered operators than Upbit

Speculation is growing that crypto exchange Bithumb could be hit with a larger administrative fine than Upbit for violating the Act on Reporting and Using Specified Financial Transaction Information (the AML law). Upbit was fined KRW 35.2bn last year and filed an objection in response.

According to financial industry sources on the 15th, the Korea Financial Intelligence Unit (KoFIU) under the Financial Services Commission plans to convene its sanctions review committee on the 16th to examine the level of penalties for Bithumb. At the meeting, Bithumb will go through the process of explaining the alleged violations. KoFIU will make a final decision on the level of sanctions based on the explanations.

Previously, KoFIU issued Bithumb a prior notice of sanctions that included a six-month partial business suspension and a warning to reprimand the CEO, citing alleged breaches of anti-money laundering (AML) obligations under the AML law. This is a tougher level than the three-month partial business suspension imposed on Upbit. Bithumb is also said to have conducted more crypto transactions with unregistered overseas exchanges than Upbit.

A key criterion in determining sanction severity is the number of transactions with unregistered exchanges. Upbit, which executed 44,948 transactions with unregistered exchanges, was ordered to pay an administrative fine of KRW 35.2bn and received a three-month partial business suspension. Korbit, which had only 19 transactions, faced just a KRW 2.7bn fine and an institutional warning. Against this backdrop, some observers say Bithumb’s fine could exceed Upbit’s, reaching the KRW 37bn range.

Some also point to a '10% surcharge provision' in the AML law’s Enforcement Decree as a factor that could push Bithumb’s fine higher. However, this does not apply only to Bithumb. Under the standard, if an entity violates the law again within three years from the date it was penalized with an administrative fine for breaching the AML law and becomes subject to another fine, the amount may be increased by up to 10% of the planned penalty.

In March 2023, financial authorities conducted on-site inspections of the five major crypto exchanges (Upbit, Bithumb, Coinone, Korbit and Gopax) and imposed administrative fines for AML-law violations. At the time, Bithumb was fined in the KRW 80m range, but all the other exchanges were also penalized. Upbit was reportedly fined in the KRW 80m range, while Coinone paid a fine in the KRW 400m range.

Regarding this, an FSC official said, "The level of sanctions for Bithumb’s breach of the AML law has not yet been determined."

Park Subin, Hankyung.com reporter waterbean@hankyung.com