[Executive Summary]

• The Financial Supervisory Service (the “FSS”) has launched an investigation into securities and futures companies after discovering that large sums of foreign currency were transferred overseas to foreign investment firms. The funds were withdrawn from Korean virtual asset exchanges, then transferred to an overseas account of a foreign investment firm. The FSS suspects that these transactions were arbitrage trades seeking to take advantage of premiums paid for virtual assets in Korean exchanges, the so-called “Kimchi Premium”

The Financial Supervisory Service (the “FSS”) has launched an investigation into securities and futures companies after discovering that large sums of foreign currency were transferred overseas to foreign investment firms. The volume of transferred funds amounts to 5 billion USD.

The funds were withdrawn from Korean virtual asset exchanges, then transferred to an overseas account of a foreign investment firm. The FSS suspects that these transactions were arbitrage trades seeking to take advantage of premiums paid for virtual assets in Korean exchanges, the so-called “Kimchi Premium”. The FSS has shared its discoveries with the Prosecution Service and plans to conduct monitoring to prevent further occurrences, as there could be similar trading schemes in other securities and futures companies.

In a similar case that involved a paper company posing as an import business, Korean bank managers were involved in creating counterfeit documents, intentionally leaving out Suspicious Transaction Reporting (STR) alerts in the reports to the headquarter and subverting other compliance regulation to engage in illegal foreign currency transactions. The principal actor has been prosecuted, and the prosecution continues its investigation to identify accomplices and accessories.

The prosecutor’s offices and the FSS are closely observing the market for Foreign Exchange Transactions Act violations. It is highly recommended to seek legal advice from experts with extensive experience and knowledge in the industry to avoid any legal issues.