South Korea to Allow Refunds for Crypto Assets Lost to Voice Phishing

Victims of voice phishing scams involving virtual assets will gain a way to recover stolen funds, closing a legal gap as crypto-linked telecommunications fraud rises.

South Korea’s Financial Services Commission said on July 15 that it will seek public comment on revisions to the enforcement decree of the Special Act on the Prevention of Telecommunications Financial Fraud and the Refund of Fraud Proceeds.

Use of virtual assets in telecommunications financial fraud has increased steadily. But because virtual assets were not included among assets eligible for victim relief, concerns had persisted that criminals could exploit the loophole. An amendment to the law expanding the scope of recoverable assets from cash to virtual assets will take effect on Oct. 1. The revised enforcement decree is a follow-up measure that sets out refund methods and valuation standards for eligible assets.

Because virtual assets, unlike cash, vary in price by token, the decree sets separate rules for the form of refunded assets. If the refundable asset is cash, victims will be reimbursed by amount. If it is a virtual asset, they will be reimbursed by token type and quantity. If the form of the stolen asset differs from the asset remaining in a fraud-linked account, the refund will be made in the form of the asset held in that account at the time the payment suspension is imposed. If multiple asset types are mixed together, cash will be counted at face value, while virtual assets will be valued at market prices at the time of the payment suspension to determine the refund amount.

The proposal also adds requirements for designating a dedicated institution to support the sale of refundable virtual assets. If stolen funds are converted into virtual assets during an attempt to move money and a payment suspension is later imposed, victims will in principle receive the assets back in virtual-asset form. That could make practical recovery difficult for victims with no experience trading virtual assets or no related account.

To help those victims recover funds, the FSC said it will designate an institution that can sell virtual assets on their behalf and pay out the proceeds in cash. Eligible institutions must satisfy all requirements the FSC deems necessary, including having the organization and personnel needed to protect virtual-asset users and support victim recovery.

The FSC said the revision will provide a legal basis for effective refunds in telecommunications financial fraud cases involving virtual assets. By clearly defining the form of refundable assets and the valuation timing, it added, the changes should allow faster and fairer refunds even when funds from multiple victims are commingled.

The proposal will be open for public comment from July 15 through Aug. 24. It will then undergo related procedures and is set to take effect in line with the amended law.