When voice phishing or investment scam proceeds are converted into cryptocurrency, victims have traditionally been unable to use Korea’s statutory freeze-and-refund system, which returns frozen fraud proceeds without requiring a lawsuit. An amendment to Korea’s Telecom Fraud Refund Act, promulgated in March 2026 and effective from 1 October 2026, extends the system to virtual assets and crypto exchanges. A draft Enforcement Decree published for comment on 15 July 2026 sets out the proposed operational details.

For foreign counsel and investigators tracing fraud proceeds with a Korean nexus, the new administrative procedure will need to be considered alongside civil attachment and criminal proceedings.

Recovery Without Litigation: Korea’s Statutory Refund System

Korea has operated a statutory refund mechanism for telecommunications-based financial fraud since 2011 under the Special Act on the Prevention of Loss Caused by Telecommunications-Based Financial Fraud and Refund for Loss (전기통신금융사기 피해 방지 및 피해금 환급에 관한 특별법, the “Telecom Fraud Refund Act”). The procedure differs from the remedies generally available in common law jurisdictions. A victim reports the fraud; the receiving institution suspends payments from the account that received the proceeds (지급정지); the Financial Supervisory Service then administers a public-notice procedure that extinguishes the account holder’s claim to the frozen balance; and the balance is distributed to victims as a refund. No judgment, no attachment order, no enforcement proceeding.

There is no direct common law equivalent. The UK’s mandatory APP fraud reimbursement rules compensate victims from payment firms’ own funds; Korea’s system instead claws back and redistributes the actual frozen proceeds — closer to a statutory, administrative form of relief that would otherwise require freezing orders and proprietary claims before a court.

The regime had one significant blind spot: it applied to money held at financial companies. Once proceeds were converted into cryptocurrency, the statutory route ended — a gap that organized fraud rings exploited by converting victims’ funds into crypto within minutes of receipt.

The March 2026 Amendment: Crypto Enters the Regime

The National Assembly closed this gap by an amendment promulgated on 31 March 2026 (Act No. 21503) and effective 1 October 2026. The amendment — which also retitles the Act to cover refund of damaged “assets” rather than “money” (전기통신금융사기 피해 방지 및 피해자산 환급에 관한 특별법) — makes three structural changes. First, virtual asset exchanges are brought within the Act’s covered institutions alongside banks and other financial companies: amended Article 2(1) expressly lists virtual asset service providers that establish and operate a virtual asset market under the Virtual Asset User Protection Act. Second, the definition of telecommunications-based financial fraud now expressly covers schemes that induce the transfer of virtual assets. Third, the assets subject to payment suspension, claim extinguishment, and refund now include virtual assets, and the accounts caught by the regime include exchange-issued user account identifiers, not only bank accounts.

The amended Act also provides a statutory basis for converting refundable crypto into cash: where the refundable asset is a virtual asset and the victim so requests, it may be sold and the sale proceeds remitted to the victim.

How the Draft Enforcement Decree Would Operate

On 15 July 2026, the Financial Services Commission published the draft Enforcement Decree for public comment, and the comment period closed on 24 August 2026. The draft answers the operational questions the statute left open.

Refunds are in kind. Money is refunded by amount; virtual assets are refunded by type and quantity (draft Article 9(2)). If the form of what the victim lost differs from what remains in the suspended account — the typical case, where cash was taken and converted into crypto during layering — the refund is made in the form of the assets existing in the account at the time of payment suspension.

Mixed pools are valued at suspension. Where money and virtual assets belonging to multiple victims are commingled, money counts at its face amount and virtual assets are valued at their market price at the time of payment suspension for the purpose of determining each victim’s refund. This fixes the allocation reference point in an asset class known for volatility.

A sale-support agency for victims without crypto accounts. Because refunds are in kind, a victim who has never traded crypto could receive tokens they cannot practically hold. The draft therefore empowers the FSC to designate a dedicated agency — staffed and organized for user protection and victim recovery support — that sells refundable virtual assets and remits cash to such victims (draft Article 9(3)).

As of early September 2026 the amended Decree has not yet been promulgated. It is expected to complete regulatory review in time to enter into force with the parent Act on 1 October 2026, and the final text may differ from the draft described above.

What This Means for Crypto Fraud Recovery Practice

Early reporting remains critical. The statutory procedure reaches only assets that remain in the suspended account or exchange wallet when the payment suspension takes effect. If the proceeds have already been moved to a self-custody wallet or an offshore platform, they will fall outside this procedure.

The administrative procedure does not replace judicial remedies. Assets already moved to self-custody wallets, offshore exchanges, or through mixers remain outside the refund system. In those cases, the available measures include civil provisional attachment (가압류), criminal complaints and confiscation, and cross-border cooperation. The Supreme Court’s proposed amendments to the Civil Execution Rules, published for comment in July 2026, would create dedicated attachment and execution procedures for cryptocurrency and are expected to take effect on the same date as the refund amendments, 1 October 2026. The administrative refund procedure and the judicial enforcement framework are therefore being developed in parallel. The judicial framework is discussed in our guide to crypto exchanges as third-party garnishees in Korea.

Cross-border cases require a fact-specific assessment. The regime is built around Korean-regulated institutions. Where a foreign victim’s funds passed through a Korean exchange, whether the statutory route can be invoked will turn on the facts of the scheme and the accounts involved; in many cross-border matters it will operate alongside — not instead of — conventional freezing, disclosure, and criminal strategies.

Cha & Kwon Law Offices advises on cryptocurrency attachment, garnishment, and recovery before the Korean courts, including the freezing and enforcement of exchange-held assets. Where the statutory refund procedure is unavailable, civil and criminal remedies may need to be considered together. This article forms part of our Asset Recovery in Korea coverage.

Related reading: Crypto Exchange as Third-Party Garnishee in Korea — how creditors attach crypto held at Korean exchanges.

Related reading: Crypto Fraud and Breach of Trust in Korea — Criminal Law Guide for Foreign Investors — charge selection and evidence in Korean crypto fraud investigations.

Cha & Kwon Law Offices advises foreign law firms, barrister chambers, and forensic investigators on cross-border fraud, asset recovery, and digital asset disputes involving Korea. For enquiries, contact us at contact@chakwon.com or visit chakwon.com.

This article provides general legal information for foreign counsel and does not constitute legal advice for any specific matter. Specific matters should be reviewed by qualified Korean legal counsel.

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