[Bitcoin Now] Virtual Assets Account for 90% of Hwanchigi... Legislative Push on the 'Foreign Exchange Blind Spot' Gains Momentum

Illegal Forex Transactions Reach 154 Billion Dollars Worldwide
Over 11 Trillion Won in Korea... Existing Legal Principles Fall Short
Government and Ruling Party Vow to "Eradicate Transnational Crime"

Recently, stablecoins have emerged as a core vehicle for virtual asset crime, and the value of illegal transactions worldwide is reportedly surging. In response, the National Assembly is ramping up discussions on bringing stablecoins under the Foreign Exchange Transactions Act framework and making monitoring more substantive.

According to Chainalysis on the 24th, the value of illegal virtual asset transactions worldwide last year is estimated at 154 billion dollars, up 162% from the previous year. In particular, over the past several years, stablecoins have become the centerpiece of illicit trading, accounting for 84% of all illegal transaction volume. This aligns with the broader trend in the cryptocurrency ecosystem, where the share of stablecoins is expanding thanks to their practical advantages such as ease of cross-border transfer, low volatility, and broad usability.

The situation is similar in Korea. From 2020 to 2024, illegal foreign exchange transactions uncovered by the Korea Customs Service totaled 12.4349 trillion won. Of this, illegal foreign exchange transactions using virtual assets amounted to 11.3724 trillion won, representing 91.5% of the total. This is because criminals are concentrating on so-called "Hwanchigi" schemes, in which they exploit the anonymity and traceability challenges of virtual assets to spirit massive sums of money overseas.

Since March 2022, the authorities have been enforcing the "Travel Rule," which requires verification of sender and recipient information, but its technical and structural limitations have become clear. The Travel Rule basically applies only to transfers between virtual asset service providers such as exchanges. Once coins are sent from an exchange to a personal wallet, subsequent peer-to-peer (P2P) transfers to criminal addresses can easily slip through the surveillance net. When this is combined with mixing services that blend the sources of funds, tracing becomes virtually impossible.

The National Assembly is now actively moving to close the legislative gap through amendments to the Foreign Exchange Transactions Act. In October last year, Choi Kisang, a lawmaker from the Democratic Party of Korea, introduced an amendment that defines cross-border movements of virtual assets themselves as virtual asset transactions and imposes licensing obligations and legality verification responsibilities on service providers, adopting a conduct-regulation approach. In December 2024, Choi Eunseok, a lawmaker from the People Power Party, proposed another amendment that newly defines virtual assets and focuses on strengthening data monitoring by requiring domestic exchanges to regularly report cross-border transaction records to the Bank of Korea.

A look at Japan's foreign exchange regulatory framework for virtual assets shows that crypto-assets are defined under the Foreign Exchange and Foreign Trade Act, but they are not included in the concept of means of payment. Crypto-asset exchange service providers must check whether customers' payments and receipts are subject to approval or notification, and transaction parties are required to report transaction details when the amount exceeds a certain threshold (30 million yen). In effect, Japan operates its regulatory system through transaction-specific reporting obligations for large or abnormal transactions, instead of imposing a registration obligation on virtual asset service providers.

Among domestic experts as well, calls are growing to eliminate legal blind spots. At the "Transnational Crime and Virtual Assets National Assembly Policy Seminar" held at the National Assembly on the 5th, Jung Youngki, an attorney at Kim & Chang, said, "The courts are responding by actively interpreting existing legal principles based on 'substance,' but they have run up against the limits created by the absence of clear provisions," adding, "It is urgent to establish an institutional foundation that can prevent illegal foreign exchange transactions in advance, rather than responding only after the fact." Hwang Sewoon, a research fellow at the Korea Capital Market Institute, said, "Currently, virtual assets are not explicitly defined as foreign exchange or as a means of payment under the Foreign Exchange Transactions Act, so cross-border transactions using them remain outside the legal framework," and stressed, "We need to provide a legal basis that allows stablecoins to be monitored within the existing foreign exchange control system by defining them as external means of payment or as a separate category of virtual asset means of payment."

The government and the ruling party likewise share a strong consensus on the need for legislation. Han Byungdo, floor leader of the Democratic Party of Korea, said, "Virtual asset crimes are increasing with each passing year," adding, "They not only undermine market order but also lead to losses of citizens' assets, and there is a serious risk that they will erode the nation's tax base and trust in the financial system. We will spare no effort in supporting institutional improvements and policy responses." Lee Myeonggu, Commissioner of the Korea Customs Service, said, "Virtual assets have the potential for innovation and growth, but they also come with risks," and added, "The Korea Customs Service will build a cooperative system with relevant agencies to eradicate transnational crimes using virtual assets and firmly safeguard the pillars of our economy."