Coin Fraud Also Desperately Needs 'Payment Suspension'...Strict Sentencing for First-Time Offenders [Coin Fraud Republic]

Special Project <Coin Fraud Republic ? They Were Meticulous>

④-⑴To Prevent Lawless Coin Crimes,
Urgent Need to Reamend the 'Telecommunication Fraud Damage Refund Act'
Apply Payment Suspension to Coin Fraud Accounts
Cannot Confiscate Personally Owned Coins Without Password
Consider Increasing Sentences for First-Time Offenders

To minimize damage from virtual asset (coin) fraud, there are calls for the urgent re-amendment of the 'Special Act on Prevention of Damage from Telecommunication Financial Fraud and Refund of Damages (Telecommunication Fraud Damage Refund Act)' within this year. This is because immediately freezing withdrawals from related accounts upon recognizing coin fraud can reduce the scale of damage. Currently, banks only decide to 'freeze payments' for accounts involved in 'voice phishing' scams. In the case of coin fraud, they have no choice but to watch the money being withdrawn helplessly.

Along with this, there are also calls to raise sentencing standards for first-time offenders of coin fraud. Separate from the enforcement of the Virtual Asset User Protection Act starting on the 19th, many cases of coin fraud are prosecuted under the criminal law for fraud. The penalty for fraud, which carries imprisonment of up to 10 years or a fine of up to 20 million won, is not light. Especially, depending on the amount of illicit gains, the Act on the Aggravated Punishment of Specific Economic Crimes can be applied, allowing for a maximum sentence of life imprisonment. The problem lies in sentencing. Due to the nature of coin fraud, with many victims and large amounts of damage, there is a need to increase sentencing severity.

The Telecommunication Fraud Damage Refund Act Does Not Cover Coin Fraud... Confiscation of Criminal Funds Practically Impossible

The legal community evaluates the amendment to the Telecommunication Fraud Damage Refund Act passed last February as a 'half-baked amendment.' This is because it only explicitly allows banks to freeze payments on accounts related to 'voice phishing.' While it can prevent money from being withdrawn from victims' accounts in voice phishing cases, it does not apply to coin fraud.

This is due to the limited definition of 'telecommunication financial fraud' in the legal text (Article 2). The amendment defines telecommunication financial fraud as 'an act of obtaining funds or property benefits by deceiving others through telecommunication or causing a third party to obtain property benefits.' In other words, only voice phishing, where the victim is approached via phone or messenger and financial institutions or investigative agencies (government) are impersonated to extort money, falls under telecommunication financial fraud.

Most importantly, the law excludes 'acts disguised as supply of goods or provision of services' from telecommunication financial fraud. Fraud committed through coin reading rooms or coin private sales falls under acts disguised as supply of goods or services. Therefore, such accounts are not subject to withdrawal freezes. There is a way, however. If the police send an official letter to the bank requesting a payment freeze, the bank can freeze the related account.

Attorney Han Sang-jun of the law firm Daegeon said, "The problem is that even if the police request a payment freeze, it is not mandatory, and if the bank refuses, there is no way." He added, "We once requested a payment freeze on an account used for coin fraud, but it took 15 days to get approval, and ultimately the victim lost all the money in the account."

The urgent need to re-amend the Telecommunication Fraud Damage Refund Act stems from limitations in confiscating criminal proceeds related to coin fraud. Confiscation under criminal law applies only to tangible objects and other natural forces (goods). Coins are not legally considered goods. In principle, there is no legal basis to confiscate coins. Although there is a Supreme Court precedent that Bitcoin can be subject to confiscation, most coin fraud lawsuits still require legal disputes.

Recently, cases have emerged where the 'Act on the Regulation and Punishment of Concealment of Criminal Proceeds (Concealment of Criminal Proceeds Act)' is applied to confiscate coins obtained as proceeds from money laundering or serious crimes. The problem arises when the victim's money passes through multiple accounts and ends up in a personal electronic wallet. The criminal must confess the password to confiscate the coins.

Attorney Han pointed out, "In individual cases, if the person does not disclose the password key to the electronic wallet, confiscation is impossible." He added, "There have been cases where criminals copied the electronic wallet externally and withdrew coins, rendering confiscation meaningless." He emphasized, "The only way to freeze criminal proceeds is to freeze payments on related accounts at the front end of the money flow."

'Telecommunication Fraud Damage Refund Act' Amendment Bill Proposed... Long Road Ahead for Law to Pass

The 'Chae Sang-byeong Special Prosecutor Act' has passed the National Assembly hurdle, but the extreme confrontation between the ruling and opposition parties is just beginning. If the president exercises the right to request reconsideration (veto), the ruling and opposition parties will have to engage in another strategic battle over the re-vote. The opening ceremony of the National Assembly scheduled for the 5th was also canceled due to the ruling party's absence, making normal parliamentary operations difficult. The photo shows the National Assembly covered by dark clouds on the 5th. Photo by Kim Hyun-min kimhyun81@

The ball is back in the National Assembly's court. On the 8th, Yang Bu-nam, a member of the Democratic Party of Korea, proposed a partial amendment to the Telecommunication Fraud Damage Refund Act. The bill includes a provision requiring financial companies to temporarily freeze withdrawals from accounts when funds of 10 million won or more are deposited from persons with no prior transaction relationship. A representative from Yang Bu-nam's office explained, "The amendment was proposed at the request of the National Police Agency."

According to data on '2023 Voice Phishing Crime Damage Amount' released by the Financial Supervisory Service in March, 66% of the total damage amount applied for relief involved first-time transactions (deposits) of 10 million won or more. While the number of victims is decreasing, the damage amount per person has increased. It is presumed that voice phishing and pyramid schemes are evolving into coin fraud.

There are no official detailed statistics related to virtual asset fraud yet. Instead, there is data that can estimate the scale of damage. According to data on 'Illegal Virtual Asset Activity Damage Scale in the Last 5 Years' received from Kim Jae-seop of the People Power Party, the damage amount recorded 3.1282 trillion won in 2021, 1.0192 trillion won in 2022, and 1.0415 trillion won in 2023, maintaining the 'trillion won' scale. The social cost of coin fraud is also increasing.

The legal community points out that even if some amendments pass, coin fraud victims are not covered. This is because the Telecommunication Fraud Damage Refund Act applies to financial companies. Attorney Jeong Jae-wook of the law firm Juwon said, "Even if applied to all first deposit transactions over 10 million won, it is difficult to apply the law to coin fraud accounts." He added, "Virtual asset exchanges are not financial companies, so there is no legal basis to freeze payments on accounts linked to electronic wallets within virtual asset exchanges." The law must explicitly state grounds to freeze accounts at virtual asset exchanges as well.

4 out of 10 Coin Fraud Perpetrators Sentenced to Imprisonment... Only 8% Receive Imprisonment Over 3 Years

There is also a need to reconsider punishments. Asia Economy investigated coin pyramid scheme fraud case rulings over the past 3 years and 6 months (2021 to June 2024) and found that out of 297 defendants, 88 (39%) were sentenced to imprisonment. The remaining 138 (61%) received suspended sentences. Attorney Shin Seon-yong of KCL said, "There are main and accomplice perpetrators in pyramid coin fraud, so this means that 4 out of 10 including all of them served prison sentences." He explained, "The imprisonment rate of coin fraud defendants (39%) is not insignificant."

However, opinions differ on sentencing severity. Among those sentenced to imprisonment, only 24 defendants (11% of all defendants) received sentences exceeding 3 years, which cannot be suspended. 202 defendants (89%) received sentences of 3 years or less, which can be suspended.

Professor Kang Dong-wook of Dongguk University Law School pointed out, "In Korea, sentences for property crimes are relatively lighter than for other crimes." He added, "Because coin fraud has many victims and significant social impact, it should be treated differently from general fraud."

Korea applies the 'principle of increased sentencing' for concurrent offenses, increasing the sentence for the most severe charge by 50%. This is because the judicial system focuses on rehabilitation rather than harsh punishment. The U.S., with a strong tendency toward 'harsh punishment,' follows the 'principle of cumulative sentencing,' summing sentences for all crimes committed.

Attorney Han of the law firm Class Hangyeol also said, "Coin fraud generally involves large amounts of damage, is often organized with multiple simultaneous frauds, and victims increase rapidly online, so sentencing for coin fraud needs to be reconsidered."

There are also limitations in procedures for victim compensation. When a defendant is found guilty in a criminal trial, the court can order the defendant to compensate for direct damages suffered by the victim through a 'compensation order' system. However, among 244 applicants who applied for compensation orders after suffering coin fraud, only 4 were approved by the court. Many rulings stated that "the scope of compensation responsibility is unclear."

This seems to reflect the characteristics of coin fraud. Coin fraud often involves many accomplices and organized deception of victims. Also, during the crime, victims may receive allowances or incentives, and the extreme volatility of coin prices makes damage calculation difficult. For this reason, there are voices that freezing withdrawals from victims' accounts in coin fraud ('payment freeze' under the Telecommunication Fraud Damage Refund Act) is the best way to reduce damage.

We plan to conduct in-depth investigative reporting on 'virtual asset investment fraud.' We will strive to develop comprehensive countermeasures to eradicate coin crimes. Please send tips to lsa@asiae.co.kr. We will investigate and report thoroughly.

▲Team Leader Lee Seon-ae, Manager △Kim Min-young, Cha Min-young, Kim Dae-hyun, Hwang Yoon-joo Reporters