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South Korea forms new unit to combat digital currency bad actors

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South Korea is upping the ante to rid its digital currency ecosystem of bad actors with the launch of a new crime-fighting unit.

The Joint Virtual Asset Crime Investigation Unit will investigate digital currency offenses, including on-chain forensics and asset seizures. The team will monitor the operations of digital currency issuers to prevent abnormal market activity to protect investors.

According to a report by Yonhap News Agency, the new unit comprises investigators from seven government agencies, with 30 members from the Financial Supervisory Service, the Korea Customs Service, the National Tax Service, and the Seoul Southern District Prosecutors Office set to initiate operations.

The unit draws from the lessons learned during the 12-month investigation of the fraudulent collapse of Terra and its founder, Do Kwon. The Seoul Southern District Prosecutors Office encountered unique challenges, including the borderless nature of digital assets and an extradition battle with the U.S. in Montenegro.

Given the peculiarities of investigating and prosecuting digital currency crimes, South Korean administrators are indicating support for an interagency investigation team.

“The virtual asset crime syndicate should help the initial virtual asset market not shrink and eliminate risks to stably settle in place,” said Prosecutor General Lee Won-Seok.

In line with the plans to crack down on erring industry participants, the Korea Securities Depository and Code has introduced a Legal Entity Identifier (LEI) for service providers in the digital currency ecosystem. The regulator noted that it would offer regulatory and compliance support for firms with LEIs as plans to sanitize the industry takes a broader approach.

Both launches come from the South Korean National Assembly’s passage of Virtual Asset User Protection. Although scheduled for operation in 2024, the law requires service providers to take necessary precautions against hacks while providing proper custodial measures for clients.

Digital currencies operating as securities will be subject to the Capital Market Act with jail time and fines stipulated for erring entities.

Specialization to crackdown on digital currency offenses

Around the world, administrators are creating specialized teams to police the digital currency industry as conventional law enforcement strategies appear insufficient. In the U.S., the Justice Department’s National Cryptocurrency Enforcement Team (NCET) has scored impressive wins against digital currency scammers since its launch in 2021.

In July, the DoJ announced a merger of the NCET with the Computer Crime and Intellectual Property Section (CCIPS) to provide additional resources to the “enormously successful startup.” The U.S. Securities and Exchange Commission, meanwhile, has also launched a digital asset unit with over 20 investigators in 2021.

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