South Korean Ruling Party Proposes Bill to Freeze Crypto Accounts Tied to Suspected Crime

South Korea is seeking to let financial authorities swiftly freeze cryptocurrency exchange accounts suspected of being used to transfer illegal assets.

Fifteen lawmakers from the ruling People Power Party, including Kim Sang-hoon, on July 28 proposed an amendment to the Act on Reporting and Use of Certain Financial Transaction Information. The bill would give the Financial Intelligence Unit, or FIU, the authority to request payment suspensions on bank accounts and crypto accounts linked to illegal assets.

The amendment defines as an "account" under the law the unique identification number that a virtual-asset service provider assigns to a user when providing trading services. That would bring user accounts at cryptocurrency exchanges, as well as traditional financial accounts, under the payment suspension system.

Under the proposal, the FIU could ask financial companies or virtual-asset service providers to suspend payments if it judges there are reasonable grounds to suspect that a bank account or crypto account was used to transfer illegal assets.

A suspension could remain in place for up to 30 days and be extended once for another 30 days if needed. Financial companies and virtual-asset service providers would be required to comply immediately upon receiving an FIU request. Failure to do so would be subject to an administrative fine of up to 100 million won ($72,000). The bill would take effect six months after promulgation.

The amendment was drafted to block at an early stage the transfer or concealment of funds generated by crimes affecting the public, including new forms of phishing, drug trafficking, gambling and illegal private lending.

Current law allows authorities to halt transactions in financial accounts only for certain crimes, such as voice phishing and unfair trading in capital markets. Critics have said that leaves authorities without effective tools to quickly stop the movement of illegal assets stemming from other crimes.

The bill is intended to give the FIU the power to request payment suspensions for accounts and crypto accounts suspected of being tied to illegal assets, with the aim of blocking the transfer and concealment of criminal proceeds and improving the effectiveness of crime prevention.