South Korea seeks to track, freeze North Korean digital assets with revised bill

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South Korea plans to submit a revised bill to track and freeze digital assets used by North Korea, the Korea JoongAng Daily reported on September 4.

The bill is designed to cut the funding of Pyongyang’s weapons programs through digital assets and is the result of 10 months of consultations between different South Korean government ministries to bolster the country’s existing sanctions against the North.

An earlier version of the bill was first announced in November by the National Intelligence Service (NIS), the agency responsible for overseeing national cybersecurity policy and defending against cyber threats, but was sent back for further revision on the orders of President Yoon Suk Yeol.

According to “multiple government sources” referenced in Monday’s report, Yoon wanted it to contain “practical measures” to bolster national security.

One administration insider told the Daily the revised version of the bill contains measures to “track and neutralize virtual coins and other cryptocurrency assets stolen by the North through hacking”—measures which were not included in the NIS’s original bill.

Hacking and cybercrime have been a persistent problem for South Korea, with illicit activity rising from the North. In its 2023 ‘Crypto Crime Report,’ Chainalysis confirmed North Korea-linked hackers had set a theft record, stealing $1.7 billion over the course of the year in review—breaking their own record of $1.6 billion from 2022.

Notorious state-funded groups such as Lazarus spearhead North Korea’s hacking efforts. In January, the FBI linked Lazarus Group to Harmony’s $100 million bridge attack, and several digital asset mixers, including Blender.io and Tornado Cash, have been sanctioned by the U.S. Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury for their role in helping the hacking group launder stolen funds.

To reverse the worrying statistics and hamper the efforts of Lazarus and company, South Korea has recently been ramping up its digital asset crime measures.

Cybercrime fighting

In August, South Korea announced it was launching a new crime-fighting unit, the Joint Virtual Asset Crime Investigation Unit, to 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.

This was swiftly followed by a statement from the Financial Intelligence Unit (FIU), the country’s money-laundering watchdog, confirming that it would provide increased support for service providers in the local digital currency sector to prevent bad actors from using digital asset exchanges to facilitate crime.

At a meeting with leading digital currency exchanges, Lee Yoon-soo, head of the FIU, suggested that the agency would improve its analysis of financial information linked to digital asset-related crime, collaborating with local law enforcement agencies.

“Since the role of virtual asset operators is very important as the primary gateway to prevent illegal acts, we plan to strengthen the legal compliance incentive system and improve the predictability of laws and systems to support operators in securing autonomous compliance capabilities,” said Yoon at the time.

However, cybercrime isn’t the only area the country is tightening digital asset rules.

Seizing illicit assets

Also in August, South Korean authorities in the city of Cheongju confirmed plans to seize the digital currency holdings of tax evaders, alleging that unpaid taxes from the trade in digital currency transactions surpassing KRW 1 million (US$750).

The city’s administrators requested seven digital currency exchanges provide information about the transaction history of over 8,500 residents, claiming that residents are turning to digital assets as a tool to evade taxes due to their borderless nature.

The authorities say they are willing to confiscate the digital currency holdings of offenders if the tax obligations remain unfulfilled. Following a 2021 revision of the country’s tax code, South Korean law supports the confiscation.

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