2021.02.24
Clean Finance-Related Criminal Records Required for Korean VASP
- The recently amended Specified Transaction Information Act sparks legal debate as it fails to obstruct financial criminals from re-engaging in the crypto business.
- Acceptance of AML reports is at the discretion of the KoFIU, which may be a source of uncertainty for VASPs.
As details of the VASP Reporting Manual(the “Manual”) released on February 19, 2021 by the KoFIU(Korea Financial Intelligence Unit) is revealed, the KoFIU faces legal issues.
*Background info: The KoFIU is the primary government agency coordinating Korea’s AML and CFT policy. On March 24, 2020 the Act on Reporting and Using Specified Financial Transaction Information(the “Specified Financial Information Act”) was amended. The amendment defines cryptocurrency as a “virtual asset” and requires virtual asset service providers(VASPs) to adhere to AML obligations. (For an outline of the newly amended Specified Financial Information Act redirect here.)
Virtual asset service providers(VASPs) are, by definition of the recent amendment of the Specified Financial Information Act, businesses engaging in the exchange, transfer, custody, administration, arbitration, mediation of virtual assets mainly cryptocurrencies. Upon enforcement of the amended Specified Financial Information Act next month(March 25, 2021), VASPs will need to meet reporting obligations to the KoFIU to start or maintain crypto business in Korea.
Of many criterions to be met, the one which requires the CEO and/or other directors of the crypto business to be at least five years clean since they have been sentenced to punishment of a fine or more under “finance related laws” prompts legal debate.
The problem is that the currently amended Specified Transaction Information Act does not prohibit financial criminals from re-engaing in crypto business.”
“Finance related laws” refers to Korean statutes listed under Article 7 subparagraph 3(3) of the Specified Financial Information Act and Article 12-2 subparagraph 3 to which Article 7(2) of the Act on Corporate Governance of Financial Companies apply mutatis mutandis. Over fifty laws are listed as “finance related laws”.
Crypto-related finance criminals in Korea have been punished under the Korean Criminal Act or the Act on Aggravated Punishment, etc. of Specific Economic Crimes. The problem is that the currently amended Specified Transaction Information Act does not prohibit criminals punished under the above Acts from re-engaging in crypto business. An VASP owner sued for scam initial coin offerings or ‘pump and dump schemes’ can reopen his business now that VASPs have been legally recognized and repeat his fraudulent behavior all over again.
Another problem that may arise with the vague criteria concerning CEOs and other directors financial criminal record is that the acceptance of the reporting obligations is at the discretion of the KoFIU. Thus, VASPs may need to go through a stricter process compared to other financial institutions adhering to AML obligations. Also, whether the KoFIU will accept reporting obligations depends on when the financial crime was carried out.
Clarification on the issue is yet to be released by the KoFIU.
Should you have any questions on conducting crypto business in Korea, please contact Cha & Kwon Law Offices.
