South Korea To Regulate Cross-Border Crypto Transactions To Combat Foreign Exchange Crimes

South Korea has revealed tightening its oversight of cross-border cryptocurrency transactions in a bid to combat tax evasion and "foreign exchange" crimes, at a G20 meeting in Washington.

The country's finance minister, Choi Sang-Mok, said that South Korea will introduce a reporting mandate for any business that handles "cross border transactions" involving crypto assets, according to an Oct.24 report from local Korean News outlet Edaily.

"We will promote preemptive monitoring of virtual asset transactions that are used for tax evasion and currency manipulation across borders"

Under the new rules, any business that handles cross-border crypto transfers will be required to pre-register with the relevant authorities and report all details to the Bank of Korea on a monthly basis.

Mending the current loophole

Cross border crypto transactions were previously a blind spot for the country's tax and custom services. Criminals may exploit the case-by-base nature of enforcement to conceal illicit proceeds and conduct illegal transactions.

Although South Korea is a small country, it has adopted cryptocurrencies, which have also introduced the risk of financial crimes. According to the Korea Customs Service, nearly 88% of foreign exchange crimes, amounting to approximately KRW 1.65 trillion ($1.2 billion), involve cryptocurrency.

In line with these measures, South Korea will amend the Foreign Exchange Transactions Act, set to define “virtual assets” and “virtual asset business operators” as distinct categories by mid-2025. The new monitoring and reporting system is slated to launch in the second half of next year.

Still, before new rules can be implemented, the government must establish a proper basis for them.

"We will establish new definitions of virtual assets and virtual asset business operators in the Foreign Exchange Transaction Act, and with this separate definition, we will define virtual assets as a third type that is not included in foreign exchange, external payment means, or capital transactions."

The finance minister said he expects the legal revision to be finished by the first half of 2025, with new reporting mandates to be implemented by Q2.

Race to regulate crypto transactions

South Korea has recently introduced a swathe of new regulations to protect crypto investors.

Last month, the Financial Supervisory Service (FSS), South Korea’s financial regulator, began a full-scale inspection of cryptocurrency exchanges to ensure compliance with stricter regulations introduced in July. This inspection focuses on uncovering suspicious transactions and confirming that exchanges adhere to investor protection protocols and accurate record-keeping requirements. The FSS emphasized its commitment to maintaining market integrity through strict enforcement against illicit activities, with plans to adjust regulations as necessary.

In a landmark development, cryptocurrency was recently recognized as a divisible asset in South Korean divorce proceedings. Law firm IPG Legal clarified that both tangible and intangible assets, including digital assets, are eligible for division in a divorce under Article 839-2 of the Korean Civil Act.