Korean authorities have uncovered a series of illegal foreign exchange transactions involving gambling proceeds and export payments funneled abroad through virtual accounts and virtual assets.
The Ministry of Economy and Finance said Friday that a government-wide “Illegal Foreign Exchange Transaction Response Team” held a meeting on December 30 and identified illegal foreign exchange transactions exceeding 600 billion won ($440 million), including hawala-style transfers and illicit overseas remittances. The response team includes the National Intelligence Service, the National Tax Service, the Korea Customs Service, the Financial Supervisory Service (FSS), and the Bank of Korea (BOK).
The largest case involved illegal foreign currency outflows through a small-sum overseas remittance operator. The operator is suspected of remitting approximately 400 billion won ($293 million) in foreign currency abroad, including proceeds from illegal online gambling sites, by issuing numerous virtual accounts that allowed deposits from third parties other than the account holder. Investigators found that the operator created duplicate accounts per customer and randomly issued virtual accounts to circumvent annual per-person remittance limits. The Korea Customs Service referred the operator to the prosecution on charges of conducting unregistered foreign exchange business.
Authorities also uncovered hawala-style transactions in which used cars and auto parts export payments were received in virtual assets and then paid to domestic companies in Korean won. Foreign traders seeking to avoid local bank remittance regulations sent approximately 200 billion won ($147 million) in export payments to hawala operators in virtual assets. The operators sold the assets and transferred the won proceeds, minus commission, to domestic exporters’ accounts. The hawala operators have been referred to the prosecution, and investigations are under way into the exporters that received the trade payments.
Another case under investigation involves exporters that understated export unit prices to reduce reported sales and brought the difference back into the country through hawala transfers. A domestic scrap metal exporter is suspected of declaring export unit prices at as low as one-eighth of their actual value, repatriating only the officially declared amount and bringing in the remaining difference through hawala transfers via borrowed-name accounts.
The crackdown was made possible through inter-agency cooperation. The FSS shared suspicions of illegal foreign currency remittances, including online gambling funds, with the Korea Customs Service after identifying them during inspections of small-sum overseas remittance operators. The customs service investigated and referred the cases to the prosecution. The National Tax Service is examining whether exporters that underreported export values engaged in tax evasion. The National Intelligence Service is providing information on overseas-linked crimes, while the finance ministry and the BOK are promoting foreign exchange information sharing and regulatory improvements.
The response team said illegal foreign exchange transactions are becoming more complex by combining virtual accounts, virtual assets, and trade transactions, and agreed to strengthen inter-agency collaboration. The government-wide response team was launched in January to jointly tackle increasingly sophisticated foreign exchange crimes.
