"Real Name" Transactions
Effective January 30, 2018, the "virtual bank account" system previously utilized by the Exchanges will be replaced by the "real name" system for future deposits to, and withdrawals from, the Exchanges. This is intended to enable banks to conduct KYC/AML screening procedures on the users of the Exchanges.
As previously noted in our newsletter dated December 29, 2017 (Virtual Currency – Enhancement of Control over Korean Cryptocurrency Exchanges), the Korean government will require the "sameness" of the bank accounts of individual users and each Exchange, pursuant to which a user must maintain a bank account in their name at the same bank as that of the Exchange. Users who do not comply with this requirement will only be able to withdraw funds from the Exchange. In order to deposit additional funds in, or create new accounts at, an Exchange, a user must have a bank account at the same bank as the Exchange.
In addition, the Korean government reiterated its previous position that foreigners and minors cannot access the Exchanges.
Following the implementation of the "real name" system, commercial banks in Korea will independently determine whether they will offer Exchange-related deposit and withdrawal services to its customers.
All banks which are currently offering "virtual bank accounts" to Exchanges will introduce the "real name" system as of January 30, 2018. As of January 23, 2018, Shinhan Bank, Nonghyub Bank, The Industrial Bank of Korea, Kookmin Bank, KEB Hana Bank and Gwangju Bank have already implemented the "real name" system related to cryptocurrency transactions.
Anti-Money Laundering Procedures
Pursuant to the Act on Reporting and Using Specified Financial Transaction Information, Korean financial institutions, including banks (each, a "Financial Institution"), are required to report "suspicious transactions" of its customers, including Exchanges (each, a "Customer"), to the Korea Financial Intelligence Unit (the "KoFIU") where there exists reasonable grounds to suspect money laundering. In the event that a Financial Institution is unable to verify the identity of a Customer due to such Customer’s refusal to provide personal identifying information absent justifiable cause, the Financial Institution is required to either reject or suspend the transaction and make a "suspicious transaction" report to the KoFIU.
Effective January 30, 2018, financial transactions (which include the withdrawal and remittance of funds, among others) between an Exchange and a Customer with the following characteristics will be deemed to be a "suspicious transaction" under the Guideline on Anti-Money Laundering Regarding Virtual Currency, requiring further investigation by the relevant banking institution to determine whether such financial transactions constitute money laundering activities:
1. (Initiator of Financial Transactions) – When a Customer who is a corporation or association conducts financial transactions related to cryptocurrency with the Exchanges.
2. (Financial transaction involving cash) – When there is no financial record of a Customer depositing funds to an Exchange, but there occurs withdrawals from an Exchange to a bank account which in turn is mostly withdrawn from the bank account in cash.
3. (Distributed Financial Transactions) – When a Customer pools funds from a large number of individuals and remits such funds to an Exchange, and the Customer later returns funds to the individuals after receiving the funds from the Exchange after a certain period of time.
4. (Foreign Exchange Transactions) – When a Customer, who previously had no record of overseas remittances and further has no record of importing business equipment such as computers, transfers funds to the account of a foreign entity in the name of the importation of business equipment.
5. (Financial Transaction Amount) – When a Customer makes a financial transaction in excess of KRW 10 million per day or KRW 20 million over a seven-day period (or where the financial transaction amount is below the aforementioned limits but the Financial Institution determines that there is a risk of money laundering based on its customer due diligence procedures).
6. (Frequency of Financial Transactions) – When a Customer engages in financial transactions in a frequency greater than five times per day or seven times in a seven-day period (or where the transaction frequency is below the aforementioned limits but the Financial Institution determines that there is a risk of money laundering based on its customer due diligence procedures).
7. (Split-financing transaction) – When a Customer is reasonably suspected of engaging in the "splitting" of financial transactions to avoid the aforementioned limits on amounts and frequency.