Digital asset criminals who defraud at least $3.8 million in South Korea will face lifetime imprisonment under upcoming laws.
The Financial Services Commission (FSC) announced on February 7 that the Virtual Asset User Protection Act will take effect on July 19, a year after it was enacted. The Act unified 19 individual bills and protects investors against an implosion like Terra, whose chief architect,
Do Kwon is a South Korean national.
While it addresses several facets of the industry, the new Act’s most drastic stipulation is life imprisonment for any criminal whose illegal profits amount to more than KRW 5 billion ($3.766 million).
Under the new Act, the operators of Terraform Labs would spend the rest of their lives behind bars if convicted. While Kwon faces charges in the U.S., fellow co-founder Daniel Shin is facing charges of fraud and embezzlement in South Korea. CFO Hang Chang-joon, arrested alongside Kwon in Montenegro, was extradited two days ago to face charges in South Korea.
South Korea’s new Act will also impose fixed-term imprisonment for digital currency criminals of more than one year or a fine equivalent to up to five times the illegal gains.
Other stipulations include requiring VASPs to custody at least 80% of their customers’ assets in cold storage. They must also obtain insurance or set aside a reserve fund to respond to instances of cybersecurity breaches.
Bitsonic CEO sentenced to 7 years over $7.7M digital currency scam
As the new regulatory framework will roll out in six months, South Korea is leveraging existing laws to crack down on digital currency criminals.
On February 6, Seoul District Court sentenced Jinwook Shin to seven years behind bars in connection with his role in a KRW 10 billion ($7.5 million) scam. Shin, the former CEO of Bitsonic exchange, faced fraud, document falsification, and forgery charges.
According to local outlet Yonhap News, under Shin’s leadership, Bitsonic would use its funds to purchase its native token, creating the illusion of demand and propping up the price.
Shin also conspired with the chief technology officer, who was sentenced to one year in prison, to manipulate the books and inflate the amount of fiat the exchange held. He also lied to investors about an alleged partnership with an undisclosed international exchange.
When the House of Cards collapsed in 2021, Shin allegedly withdrew $7.5 million as customers struggled to recover funds.
Elsewhere, Seoul police have arrested three executives from Haru Invest, a digital asset yield platform that suspended withdrawals last year.
According to local reports, prosecutors in the capital allege the three defrauded KRW 1.1 trillion ($826 million) from customers. Haru touted itself as a risk-free DeFi platform that could yield double-digit returns on digital currency deposits. Its management claimed to have over a billion dollars in assets under management.
The collapse began mid-last year when Haru announced a withdrawal freeze, citing “an issue with one of the service partners.” It shut down its office shortly after.
The company’s ties to other troubled digital currency firms were uncovered months later. This includes B&S Holdings, the company it blamed for its woes and whose founder, South Korean police issued an arrest warrant for last month. Haru was also cited by Delio, a local digital currency lender, as the reason for its withdrawal suspension.
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