In an effort to curtail money laundering, tax evasion and other types of financial crime, starting on January 30th the South Korean government will forbid the use of anonymous bank accounts to trade Bitcoin and other cryptocurrencies.
More specifically, Kim Yong-beom, vice chairman of the Financial Services Commission (FSC), said during a press conference held on January 23rd, that “cryptocurrency traders in South Korea will not be allowed to make deposits into their virtual currency exchange wallets unless the names on their bank accounts matches the account name in cryptocurrency exchanges.”
Foreign investors and those under the age of nineteen have also been prohibited from setting up accounts to deal in Bitcoin and other digital currencies.
Kang Young-soo, who runs the FSC’s cryptocurrency division, said, “The government is concerned about manipulation of market conditions and injection of illegal funds while market funds are leaked into speculative investments,” adding that the government “[views] that foreigners’ and minors’ investments contribute to our areas of concern.”
This move has been a reaction to a growth in Chinese citizens investing in virtual currencies in South Korea following the Chinese government’s decision last year to ban these trades in the country.
According to Choi Yong-kwan of BlockchainOS, this new regulation is particularly aimed at Chinese investors.
“The biggest problem lies on Chinese cryptocurrency investors, so this matter is an important focus,” he said, pointing out that “digital coins from China enter Korean exchanges, then are illegally changed into foreign currencies, which are sent back to China.”
Will South Korea Ultimately Ban Virtual Currencies?
As a result of cryptocurrencies’ growing popularity in the country and the market uncertainties surrounding these virtual monies, the South Korean government is even contemplating banning all local cryptocurrency exchanges.
On Tuesday, an official confirmed this and said, “The government is still discussing whether an outright ban is needed or not, internally.”
Earlier, however, Kim Sang-jo, chairman of the FSC, said that banning Bitcoin and likeminded virtual currencies “is not realistically possible. Based on the electronic commerce law, the government doesn’t even have the authority to close down cryptocurrency trading platforms.”
“From the viewpoint of an economist, it is not a fair and transparent decision to outright ban economic activity. Whether it is excessive speculation or not, the gain or the loss is the responsibility of the investor,” Sang-jo added.
South Korea to Heavily Tax Virtual Currency Exchanges
Besides banning trading via anonymous banks accounts, South Korea will start heavily taxing virtual currency exchanges, planning to accrue 24.2 percent in local income and corporate taxes from the country’s digital currency transactions.
For instance, Yonhap News Agency reports that “Bithumb, one of South Korea's major cryptocurrency exchanges, is expected to pay about 60 billion won in corporate and local income taxes as its estimated earnings reached 317.6 billion won last year.”
The South Korean government also set specific parameters as to the types of virtual currency exchanges that should be monitored more closely by authorities.
According to a government’s statement, “specifically, for users to make virtual currency transactions more than 10 million won per day or more than 20 million won for 7 days when depositing and withdrawing funds, this is the type of financial transaction you suspect for money laundering."
South Korean Banks Fall in Line with New Virtual Currency Rules
Many banks have already moved to fall in line with the South Korean government’s new anti-money laundering (AML) and know-your-customer (KYC) regulations.
Korbit, one of the major virtual currency exchanges in South Korea, pushed its users to register an account with Shinhan Bank, which has adopted the new AML regulations and will be able to carry out virtual currency exchanges.
In a press release, Korbit told its customers, “To use the new KRW deposit method, which is slated to be implemented within this month, you must have a Shinhan Bank account registered under your legal name. Please use this time to create a banking account at Shinhan Bank. We will follow up with further instructions on how to input the new KRW withdrawal account information on Korbit.”
Other banks that have fallen in line with the government’s new legislation include IBK Bank, NongHyup bank, KDB Industrial Bank, and Woori Bank.
Plenty of local Bitcoin investors reacted to the government’s news.
An investor who preferred to remain anonymous told Reuters, “Everyone knew this was coming, as the government already said they will enforce the real-name system before. Rather, I can see this as a chance to go in, not out. I don’t see any reason to take my money out.”
Furthermore, amidst fears of a potential ban to all virtual currency trades, a student told Reuters, “In case the government shuts down all local exchanges, investors can always go abroad and open an account there.”
The student downplayed the issue, adding, “I can ask my friends who study abroad or travel there myself. It's not that big of a problem.”
Currently, South Korea only trails the US and Japan as the largest market in the world for Bitcoin trading, accounting for approximately 15 percent of all transactions.
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