South Korea To Block Non-Compliant Foreign Crypto Exchanges from September

The South Korean Financial Services Commission (FSC) announced today that any non-Korean cryptocurrency exchanges that fail to properly report to the Financial Intelligence Unit (FIU) after September 25th will pay fines, will have their domains blocked within the country, and operators may face jailtime. The announcement indicated that foreign crypto exchanges will have to report the same transaction information as domestic exchanges.

Foreign exchanges will be required to report any business conducted within South Korea and/or with South Korean nationals. Foreign crypto exchanges will get no special treatment under the new law instated by the amendment to the Special Reporting Act. The demands made by the FSC fall in line with the requirements domestic exchanges must follow.

Moreover, the announcement noted that unlike other Korean crypto exchanges, as of yet, no foreign exchanges have obtained an ISMS certification from South Korea in order to operate legally per the amendment. The lack of ISMS certification alone will likely be enough grounds for Korean officials to shut down foreign crypto operations in the country.

Possible Consequences

If a non-Korean cryptocurrency exchange operator fails to report to the FIU, that exchange may no longer operate in Korea, and its website will be blocked by the South Korean government. Furthermore, punishment may include up to 5 years in prison for the operators and a the exchange will pay a fine up to about $43M USD.

The FSC warned Korean nationals that they may take prompt measures against non-compliant exchanges as early as on September 25th, suggesting that that finger of the executive branch already has a list of exchanges they will target – biggest among them being Binance. Korean users may lose access to some websites from within the peninsula, meaning they will lose access to their funds.

Korea’s FIU will work with international law enforcement agencies to ensure full cooperation and understanding of the decree. International cooperation could lead to banning Korean users from getting KYC clearance on international exchanges.

Crypto Taxation

Korea’s National Assembly and the executive branch of the government have recently been hard at working to determine how to handle the finer details of the cryptocurrency issue. Although a tax law will go into effect requiring Koreans to pay taxes on their crypto gains starting in the 2022 tax year, rumblings abound to delay those taxes until 2023.

Such a delay would help the IRS prepare to handle the volume and type of inquiries about filing that they surely will field. On the other hand, delaying now could cause considerable confusion.