South Korea’s integrated financial regulator – Financial Supervisory Service (FSS) has stepped up investigations against local banks tied to foreign remittances from cryptocurrency exchanges. This is because they have detected a significant increase in illegal overseas transactions remittance.
In recent weeks, banks’ role in assisting Kimchi premium traders to enable fast money has been the subject of intense scrutiny. It was suspected earlier that financial institutions were used by people and corporate entities to transfer funds in and out of the country to fund kimchi premium arbitrage efforts. The FSS have now claimed that the amount of kimchi premium trading is around $6.5 Billion (8.5 trillion KRW).
Asia Times published a report that majority of the funds remitted overseas between January 2021 and June 2022 were discovered to have originated from cryptocurrency exchange accounts that were then moved out of the country. The financial watchdogs are suspecting that some of the firms might have been taking advantage of the kimchi premium.
The kimchi premium is the gap in prices of cryptocurrency assets in South Korea compared to other trading platforms overseas. Traders now purchase these crypto assets from foreign exchanges and sell them on domestic exchanges to make profit. The primary concern is that this trading encourages capital outflow from the company.
Shinhan Bank and Woori Bank were two of the financial institutions that were flagged by the FSS for violating the foreign remittance regulations. Following the investigations, many people are however in the firing line. The FSS estimated that $3.37 Billion was remitted overseas by traders assisted by local banks. The banks initiated internal audits following this estimation and discovered many strange transactions.
The FSS has expressed urgency in the problem and has also revealed that it is ready to take punitive actions against any local banks involved. This development comes a week after Daegu-based shell firms which were suspected of facilitating many suspicious transactions were raided by the authorities. The shell firms allegedly transferred large sums of money overseas to import semiconductor chips and gold bars.
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