[Editorial] Virtual assets that account for 73% of illegal foreign exchange transactions should not be left unchecked

News that 73% of illegal foreign exchange transactions are carried out with virtual assets such as Tether and Bitcoin. This is the result of an analysis of ₩12.4349 trillion in illegal foreign exchange transactions that the Korea Customs Service detected and referred to the prosecution over the past five years. The amount of illegal foreign exchange transactions related to virtual assets, which was ₩20.8 billion in 2020, surged fiftyfold to ₩1.0631 trillion last year.

The concern that coins would be abused for cross-border illicit fund transfers or as tools for crime because of their anonymity appears to have materialized. Methods of illegal foreign exchange transactions are diverse. 'Hwanchigi'—using export-import payment settlements that bypass banks to evade corporate taxes and disturb financial and foreign exchange markets—is rampant. Beyond simple remittances such as funds for studying abroad, there are many suspected cases of transferring assets to an overseas child's wallet to evade inheritance tax. Serious criminal acts have also been detected, including hiding assets overseas by inflating import prices to siphon off the difference and laundering money by declaring low export prices and cashing out the difference.

The actual scale of illegal foreign exchange transactions will far exceed the ₩9 trillion that was detected. Transactions that move virtual assets bought on domestic exchanges to overseas exchanges can be monitored, but transfers between personal wallets or between overseas exchanges and personal wallets are difficult to verify. The rapid expansion of stablecoins, which are easy to cash out and have greatly improved payment functionality, is another worrying factor. According to the Financial Action Task Force (FATF), stablecoins account for 63% of illegal global virtual asset transactions.

Government responses have been slow. The Foreign Exchange Transactions Act, which requires that the purpose of a remittance be stated when sending more than US$100,000 abroad, does not even define virtual assets. The Ministry of Economy and Finance is pursuing amendment bills such as defining virtual assets, preregistration of virtual asset service providers, and Bank of Korea reporting of cross-border transactions, but they are stalled. The government's stance on virtual assets itself is unclear. Financial Services Commission Chairman Lee Eok-yeon said they "have no intrinsic value," maintaining a conservative stance on institutionalizing virtual assets. Regarding stablecoin legislation, he also emphasizes the need to prepare sufficient safeguard measures. A cautious attitude cannot be faulted, but imminent crimes must be swiftly blocked. Hong Kong is implementing a measure that assigns risk scores to coin wallets and blocks transactions entirely when a certain level is reached.