DAXA Identifies 12 Illegal Crypto Operators, Refers Case to Police

The Digital Asset eXchange Alliance, or DAXA, said on June 10 that a joint investigation with South Korea’s registered virtual asset service providers identified 12 illegal crypto operators and referred them to police for investigation.

The probe ran for about three months starting in February. DAXA and domestic virtual asset service providers that have filed with the Financial Intelligence Unit conducted an intensive review of operators that continued to do business without reporting to the FIU.

The targets included over-the-counter platforms that brokered trades between the Korean won and virtual assets through Telegram and their own websites, as well as unregistered overseas exchanges that operated for South Korean users. Under the Act on Reporting and Using Specified Financial Transaction Information, operating a virtual asset business for commercial purposes without filing with the FIU is punishable by up to five years in prison or a fine of up to 50 million won ($36,300).

The investigation found signs of violations of the law at 12 companies, including eight illegal OTC operators and four unregistered overseas exchanges serving domestic users.

The illegal OTC operators charged average trading fees of 1.5% to 10%. That is as much as 62 times the average 0.16% fee charged by South Korea’s five major crypto exchanges. DAXA said the unusually high fee structure could be tied to money laundering linked to crimes such as drugs and gambling, as well as demand for illegal foreign-exchange transactions.

The probe also found signs that some operators improperly collected users’ personal information. Some firms required customers to submit copies of resident registration cards and bank account passbooks, describing the process as identity verification. Because they were not registered virtual asset businesses, DAXA said the practice may violate South Korea’s Personal Information Protection Act.

The investigation also identified unregistered overseas exchanges that recruited South Korean users through Korean-language websites, won-denominated services and marketing aimed at Koreans. DAXA said those exchanges fall outside the scope of domestic financial supervision, which may leave their anti-money laundering systems and user protection measures inadequate.

Unlike domestic exchanges, they are also not subject to obligations under South Korea’s Virtual Asset User Protection Act to monitor abnormal trading. DAXA said that could create blind spots in oversight of unfair trading practices such as market manipulation.

Kim Jae-jin, DAXA’s executive vice chairman, said the probe was the first case in which legally registered domestic virtual asset businesses worked together to respond to illegal activity. DAXA will continue to strengthen industry cooperation against illegal crypto operators while stepping up user protection and efforts to foster a sound market, he added.