South Korea’s FIU Gears Up for Stringent Regulations on Crypto Mixers

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Key Takeaways

  • The FIU emphasized the urgency of addressing the misuse of crypto mixers by scammers
  • Reportedly, the talks for the regulation of crypto mixers are still in the early phases

South Korea is in the midst of a pivotal moment as the government contemplates imposing sanctions on the use of crypto-mixing services, driven by a surge in their exploitation for illicit money laundering operations.  A Bitcoin or crypto mixer combines and distributes cryptocurrency to make transactions harder to trace.

Mirroring actions taken by the United States, the South Korean financial regulator, the Financial Intelligence Unit (FIU), is gearing up to introduce new regulations surrounding digital asset mixing services.

The urgency surrounding this move is underlined by the escalating global concerns regarding the potential misuse of crypto mixers, also known as crypto blenders. The FIU is actively engaged in discussions to address the misuse of these platforms by criminal organizations, acknowledging the pressing need for measures to counteract these emerging challenges.

The genesis of these discussions can be traced back to the U.S. decision to impose sanctions against crypto mixers. One FIU official revealed that the talks are still in the early phases and highlighted the active involvement of U.S. authorities in shaping the discourse around new regulations.

The risks associated with employing crypto mixers for money laundering or concealing earnings are substantial. Mixers, along with online gambling sites, are identified as primary contributors to severe money laundering issues, processing a significant portion of illicit currencies. The alarming nature of this trend has prompted the U.S. government to impose sanctions against major crypto-mixing service providers in recent years.

Local media reports sheds light on the FIU’s deep concern regarding the substantial threat posed by virtual asset mixers. The FIU official expressed sympathy with the issue and underscored the high risks of money laundering through these platforms. The regulatory authorities are actively considering stringent crypto regulations for crypto mixers as a proactive measure to curb illicit financial activities.

The global crackdown on crypto mixers saw its initial wave in August 2022 when the U.S. Treasury Department imposed sanctions against Tornado Cash, a prominent crypto-mixing service. The momentum continued in November 2023 with the announcement of sanctions against crypto mixer Sinbad, citing alleged North Korean ties.

Local South Korean media reported on January 15 that the FIU emphasized the urgency of addressing the misuse of these platforms by criminals, particularly since specific sanctions are yet to be established against mixers in Korea. While discussions are ongoing, the implementation of regulations is anticipated to take time.

In a broader context, the evolution of virtual asset mixers into tools for criminal activities has prompted global regulators to reassess their strategies. The U.S., in particular, has taken decisive steps with the Treasury Department’s Financial Crimes Enforcement Unit introducing anti-money laundering (AML) regulations for mixers in October.

The U.S. government’s proactive approach extends beyond sanctions, as evidenced by the indictment and detention of the founders of Tornado Cash on charges of laundering more than $1 billion and violating sanctions. In November 2023, the U.S. Department of the Treasury sanctioned the Sinbad cryptocurrency mixing service for its use as a money-laundering tool by the North Korean Lazarus hacking group.

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Saniya Raahath
Saniya Raahath

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