16 Arrested in South Korea on suspicion of violating Crypto Kimchi Premium Trading

South Korean authorities have gone after suspected kimchi bounty traders – making 16 arrests linked to USD 1.4 billion worth of crypto transactions.

According to media outlets Newsis, as well as KBS and NoCut News, the individuals were all arrested by Seoul-based customs authorities, with two cases already sent to prosecutors. Not all of the 16 are believed to be traders – some may be suspected brokers or intermediaries. A large number of those arrested are still being questioned by officers, and authorities have not yet decided whether their cases will be forwarded to prosecutors. Others have already been fined.

All were arrested under the Foreign Exchange Transactions Act. As reported, financial regulators have investigated all of the country’s major commercial banks for suspected negligence. They claim the sum of illegal kimchi prize trading conducted through South Korean banks could be as high as US$6.5 billion, although the exact sum is likely to be revised after regulators complete their audits.

Kimchi premium trading refers to a situation where growth in domestic demand for coins such as bitcoin (BTC) drives prices in South Korea above the global average.

As such, many traders have attempted to purchase tokens from over-the-counter (OTC) sellers, usually based in China and Japan. These coins have then been dumped on South Korean platforms and sold for fiat, making eye-watering profits. This fiat has then been used to buy goods from abroad, including precious metals such as gold and semiconductor chips. The first transfers to the OTC providers may have been made via the South Korean banks – as regulators such as Financial Supervisory Service (FSS) say, were the goods purchases.

Regulators claimed they had issued several warnings to banks, telling them that kimchi premium trading was now widespread. Some responded by tightening rules on overseas money transfers for domestic customers. But the regulators have claimed that the banks did not heed their “repeated” warnings about the matter.

Most cases are believed to date back to 2021 or the first months of 2022.

Prosecutors allege the traders used a series of alleged domestic shell companies in an attempt to throw investigators off the scent.

One of the people arrested, the customs officials explained, is suspected of having established “several ghost companies” in South Korea “under the name of an acquaintance” from April last year to March this year. This unnamed individual then allegedly attempted to cover up the nature of the transactions by claiming that money passing through the company was raised through the sale of imported cosmetics. Customs fined this person US$8.2 million.

Two other individuals, whose cases will be referred to prosecutors, allegedly organized calls by clients, pooled money for major OTC purchases and promised to pay out profits via “domestic recipients” as “designated” by their alleged “clients.”

These arrests are likely just the tip of a much larger iceberg. The media reported that customs officials were also investigating 23 other suspected “shell” companies that “may have used similar methods.”
_____
Learn more:
– What is a bear trap and how do you change it?
– Legal rules Bithumb must pay damages to 190 customers due to “computer error”

– Kimchi Premium Trading Total may be almost twice as high as first thought, says the regulator
– Coinbase CEO says transaction fee-based revenue model won’t work long-term