Prosecutors in South Korea have arrested three people in an investigation into $3.4 billion in foreign exchange transactions that could be tied to illegal cryptocurrency trading.
As Bloomberg News reported Thursday (Aug. 11), the trio was being held on allegations that included setting up paper companies and operating an unregistered crypto trading business.
The Daegu District Prosecutors’ Office told Bloomberg the suspects were facing additional charges connected to false data submissions to banks and substantial foreign currency transfers abroad.
According to Bloomberg, the individuals arrested are tied to a firm that sent 400 billion won ($307 million) worth of funds overseas from a Woori Bank branch in Seoul to earn arbitrage profits.
The country’s Financial Supervisory Service (FSS) has said that unusual transactions adding up to 1.6 trillion won took place at five branches of Woori Bank between last May and June 2022.
Similar transactions worth 2.5 trillion won were uncovered at 11 branches of Shinhan Bank between February 2021 and July 2022, the regulator said.
Read more: South Korea’s Crypto ‘Kimchi Premium’ Suspected in $3.4B FX Investigation
As PYMNTS reported last month when the FSS first revealed the investigation, the probe centers on something known as the Kimchi premium.
It works like this: Because it is tough to transfer large amounts of money in and out of crypto exchanges in Korea from overseas, the price of digital tokens has long been much higher — in some cases as much as 20% higher — on Korean exchanges, due to the heavy popularity of crypto in that country.
That means someone who buys crypto abroad and sells it for won on the Korean exchanges can make a tidy sum. The trouble is getting those profits out of the country, as its banks have stringent reporting rules for any foreign exchange transaction over certain amounts.
Banks are typically unlikely to approve these transfers, especially due to recent crackdowns by the Korean government aimed at stopping money laundering, tax evasion and price manipulations, along with as cutting off the flow of money out of the country.
Transferring billions of dollars out of the country — if it was generated from crypto trading — would be difficult without filing false reports with banks as to its provenance.
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