The total value of illegal kimchi premium trading through South Korean banks could be as high as USD 6.5 billion, according to regulators, and the country’s authorities say they are now investigating “all” domestic commercial banks.
Domestic demand for tokens such as bitcoin has skyrocketed in recent years as a result of crypto fever (BTC). As a result, there is now a “kimchi premium,” in which coins trade for exorbitantly high prices in South Korea (compared to the global average). As a result, some traders have purchased tokens from over-the-counter (OTC) vendors in China, Japan, and other East Asian countries. South Korean traders then dumped these coins on domestic platforms, profiting handsomely (up to 30% in some cases).
Individual and corporate customers, including a number of alleged domestic shell companies, used South Korean financial institutions to shuttle money in and out of the country to fund massive kimchi premium arbitrage efforts, as previously reported.
According to regulators, these profits were then distributed to various shell companies, which then transferred the funds to USD accounts in foreign financial institutions. Some purchased expensive assets from abroad, such as precious metals, using South Korean banks.
The FSS requires banks to carefully monitor overseas remittance requests and has reportedly “repeatedly” warned all South Korean banks to be wary of possible kimchi premium-related remittances in the last year or so.
Initially, the Financial Supervisory Service (FSS) stated that only two banks, Woori Bank and Shinhan Bank, may have violated its overseas remittances regulations.
The FSS stated last month that it believed USD 3.37 billion had been remitted overseas by various traders using domestic banks. Since then, banks have conducted internal audits, many of which have revealed suspicious-looking transactions.
According to Asia Time, the FSS has revised its estimate to around USD 6.5 billion, nearly doubling its initial estimate. It also stated that “all banks” are currently being investigated. Following the completion of the banks’ internal investigations, the FSS is likely to conduct its own “on-site” investigations.
According to the FSS, punitive actions against banks are “inevitable,” and the agency is taking the matter “extremely seriously.” Prosecutors raided one of the alleged shell companies thought to be at the centre of a large number of the suspicious transactions in question late last week.
The company, described as a “trading” firm, is based in Daegu, South Korea, and reportedly “sent large sums of money overseas” to “import gold bars and semiconductor chips.” According to YTN, some USD 5 billion in transactions appear to be linked to the firm, and prosecutors say they have “confirmed” that the company spent more than USD 305 million of the funds it received from crypto sales on chips and gold imports.
Prosecutors detained three people they believe are associated with the company on suspicion of violating the Foreign Exchange Transactions Act. According to the prosecution, the firm or individuals associated with it made their initial purchases from Japan-based OTC vendors.
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