From March 2021, cryptocurrency exchanges and virtual currency providers in South Korea will be barred from handling “dark” coins and assets that heighten money laundering risks, the country’s main regulator, the Financial Services Commission (FSC), in a notice.
Law Changes in South Korea
The raft of changes follows amendments of the Special Payment Act, a set of regulations that covers the legality of cryptocurrencies in crypto-receptive South Korea.
Affected coins include Monero (XMR), ZCash (ZEC), and Dash (DASH). The regulator said these coins and privacy-leaning virtual currencies are hard to trace and could be facilitators for money laundering.
Besides, exchanges must also enforce strict Know-your-Customer and Anti-Money Laundering rules to arrest attempts by users to launder cash or fund terrorist activities.
Therefore, centralized exchanges with fiat support in the country must know the personal details of their customers, rigorously cross-checking them with government-issued identifiers like national ID numbers or passports.
Additionally, exchanges must report to authorities their operations within the first six months after the implementation of the law.
Wider Crack-Down on Privacy Coins
This is not the first time authorities in South Korea have voiced their concerns on privacy coins. Following stipulations by international regulators and advisory from the Financial Action Task Force, the South Korean wing of OKEx de-listed several privacy coins.
Generally, exchanges in South Korea have refrained from listing private coins as regulators across the board have been expressing their reservation, citing the coins’ ability to act as a conduit for money laundering.
Why Regulators are Apprehensive of Privacy Coins
Coins such as Monero can obfuscate their transactions making it hard for regulators to follow through.
By employing advanced techniques such as ring signatures and mixers, it becomes hard for transactions to be tracked despite the coins being posted on a digital ledger that technically are considered transparent.
On the other hand, transactions in Bitcoin, Ethereum, and most platforms are open. Through dedicated firms like Chainalysis, authorities can track transactions and even decrypt the identities behind these transactions.
As reported, the Internal Revenue Service (IRS) of the United States recently awarded contracts to two firms that claimed to have the requisite technology to crack privacy coins transactions.