South Korea’s New Leap Fund Doesn’t Check Crypto Holdings, Leaving Blind Spot in Repayment Screening

South Korea’s New Leap Fund, a government program that writes off long-overdue debt, does not review whether applicants hold virtual assets, raising concern that borrowers with the means to repay could still receive debt relief.

The issue was reported on September 29 by the Financial News newspaper, citing an analysis of data that Korea Asset Management Corp., or Kamco, submitted to Kim Jae-seop, a member of the National Assembly’s Political Affairs Committee. The analysis found that Kamco does not check applicants’ cryptocurrency holdings when reviewing assets for New Leap Fund applications. That is despite revisions to the Credit Information Act that allow government debt-adjustment agencies to access crypto-related information without a debtor’s consent.

The New Leap Fund supports individuals and sole proprietors who have been delinquent for more than seven years and whose unsecured principal debt is 50 million won ($36,100) or less. The program is intended to help long-term delinquents get back on their feet. But it may fail to screen out applicants who have already secured enough repayment capacity through crypto assets.

Kamco’s position is that, rather than checking crypto holdings at the application stage, it uncovers concealed assets through post-review reporting. If additional assets are identified based on tips submitted to its hidden-assets reporting center, it can claw back forgiven amounts or seek damages. Kamco said it has not yet found any cases in which additional assets such as crypto were discovered after a borrower’s debt had already been canceled.

Under a similar debt-adjustment program, the New Start Fund, authorities have already found multiple cases in which applicants hid crypto holdings. In an audit by the Board of Audit and Inspection released in December last year, one borrower holding about 430 million won ($311,000) in crypto received debt relief of 120 million won ($86,900).

The audit also found that 269 of 17,533 borrowers who received debt relief of at least 30 million won ($21,700) under the New Start Fund held crypto worth 10 million won ($7,200) or more. Their holdings reached as much as 570 million won ($412,000), and the total amount of debt forgiven came to 22.5 billion won ($16.3 million).

After the audit, the Financial Services Commission said it would discuss ways to work with virtual-asset service providers to verify the crypto holdings of debt-adjustment applicants. But the New Leap Fund still does not conduct such screening, prompting criticism that asset-verification procedures in the debt-restructuring process need to be strengthened.