Dunamu (Upbit) heads want to store resident ID numbers

Recently Soonho Hwang, the head of the External Cooperation team at Dunamu, operator of Upbit exchange in South Korea, stated that cryptocurrency exchanges should be able to collect resident ID numbers to prevent money laundering.

He reiterated that the Special Reporting Act necessitates such comprehensive data collection since other financial institutions require the same of their users. He emphasized in a meeting at Upbit headquarters in Seoul’s upscale Gangnam neighborhood that the lawmakers and industry insiders should discuss the issue further.

In South Korea, a person’s resident number number can be equated to their social security number and state ID number in one. Residents and citizens use the number to open bank accounts, buy mobile phone contracts, buy a car, and possibly in the near future, open a cryptocurrency exchange account.

Hwang points out that the government has enacted a number of regulations that curb money laundering in some way, but that they do not go far enough towards anti-money laundering (AML) efforts. Upbit itself has implemented AML systems to detect unusual transactions on their platform and shut down the users. Regardless of the measures both the government and Upbit may take separately, it will take a cooperative effort from both parties to truly stomp out the bulk of money laundering via cryptocurrency in the country.

Part of said thorough cooperation would involve exchanges collecting users’ real name, resident number, and a verification of the authenticity of the number through the Korean government.

Standards Limitations

Hwang commented, “[Since exchanges have limited information and a financial institution reports a suspicious transaction, it is more difficult to track it through the trading platform.]” As of now, Upbit only collects the name and phone number of users. In Korea, the phone number is directly linked to a person’s ID in various ways, but the exchange must verify ID through a third party.

Going through a third party creates some complications, according to Hwang. It may slow down the verification process and ties the hands of the exchange operators who may want to halt more suspicious activities. With direct access to resident numbers, exchanges can use the government’s verification service to respond internally to various issues.

“[As of now there is no clear standard because users go for the easiest onboarding process. Requiring more information to sign up will be hard for potential users to accept… but a clearer standard must be established for what information should be collected],” Hwang further stated.

Korean users may not see too much of a difference in regard to their day-to-day trading if they are required to supply their resident ID. As stated before, all individuals who wish to open a mobile phone account in the country are required to share their ID number. The process effectively directly links an individual’s phone number to their resident ID without revealing the ID number to third-party apps.

Phones are used to track and identify people nationwide in many different ways. In the contemporary COVID-19 world, phones are used to generate unique QR codes for each individual’s phone which are scanned to track the general movements of the user. Also, the Korean government has launched DID apps in partnerships with private companies to serve as drivers licenses or to gain access to local government services. Such applications would not be possible without the resident ID number.

Money Laundering via Upbit

While Upbit has anti-money laundering measures in place on their platform, their effectiveness is open to suspicion. Less than a year ago, a massive hack occurred on the platform which saw the exodus of roughly $50 million worth of Ethereum and other cryptocurrencies. In the following weeks, all users had withdrawals and deposits locked. Then only non-Korean users were locked out of their full functionality which applies still to this day to the chagrin of hundreds of users.

Further related to the late-November hack of 2019, Uppsala confirmed that money laundering took place with the stolen cryptocurrencies. 20,520 ETH from the Upbit hack were sold or were primed to be sold on over a dozen different exchanges. Patrick Kim, the president of Uppsala Security, said at the time that “[we believe that the hackers continue to launder money through exchanges without any sanctions standing in their way.]”

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