• Sun. Aug 14th, 2022

South Korea: 2 banks under investigation for not reporting digital currency trading earnings

ByHazel R. Lang

Jul 28, 2022

The Seoul Central District Prosecutor’s Office has shone a spotlight on the operations of two entities following allegations of illegal foreign remittances to the tune of $1.5 billion.

Remittances sent overseas are worth more than KRW 2 trillion ($1.5 billion) and are believed to have been made by exchanging the Kimchi premium, exploiting the price difference between Korea and other currency exchanges digital. Entities singled out in the plot are Woori Bank and Shinhan Banks, as they are accused of illegally funneling profits to China and other countries.

The latest investigations are part of a larger case put together by the Financial Monitoring Service (FSS), South Korea’s top financial watchdog. Working with both parties, the FSS filed its “investigative credentials” with the Supreme Prosecutor’s Office, which has since been transferred to the International Crime Investigation Department of the Prosecutor’s Office.

“We are just looking at the data,” said an official from a local publishing house. As prosecutors review the documents, they are faced with the task of proving whether the overseas remittances were money laundering by virtual currency speculators.

This is not the first time that Woori Bank has appeared on law enforcement’s radar, as it has been investigated for an anomalous foreign exchange transaction worth KRW 800 billion. The FSS also conducted an on-site investigation at a Shinhan bank branch last month into a KRW 1.3 trillion transaction.

Milking Kimchi Premium

The funds in question were obtained through South Korea’s infamous “kimchi bounty,” which is the difference between the price of BTC on South Korean exchanges and other global platforms.

This creates arbitrage opportunities for traders looking to make quick gains in the markets. The price gap reached its peak of more than 20% at the start of the year before experiencing a lull. Nevertheless, the price of BTC on Binance is $21,255, but on UpBit, the virtual asset is trading at almost $21,450, with a premium of 1.6%.

The kimchi premium is often caused by delays in accessing US dollars in the country, creating a backlog of delays that drives up asset prices. The difference is often associated with the “lack of high yield investment options for investors”.

Investors are taking advantage of the premium by buying BTC in foreign exchanges and reselling them in South Korea. However, in recent years, regulators have stepped up their efforts to stifle investors’ chances of profiting from the kimchi premium.

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