Korea struggles to come up with cryptocurrency measures

Confusion persisted in South Korea over the weekend regarding the government’s measures against criminal use of cryptocurrencies, with the financial authorities urging banks to join their efforts and Cheong Wa Dae stressing that the relevant organizations were “in tune.”

On Sunday, a high-ranking Cheong Wa Dae official said the presidential office’s stance toward cryptocurrency transactions is consistent with that of the government’s announcement made on Dec. 28. The government had said it would review the options of enforcing real-name transactions, giving the Fair Trade Commission the authorization to investigate cryptocurrency exchanges in Korea, and/or, preparing a bill to ban operation of the exchanges.

The official’s remarks appeared to be an attempt to quell controversy sparked by Justice Minister Park Sang-ki on Thursday that they may seek the shutting down of cryptocurrency exchanges, followed by inconsistent reactions from different members of the government, including Finance Minister Kim Dong-yeon who said the matter “needs consultations.”

The confusion triggered a rollercoaster ride of cryptocurrency prices here, while the phenomenon of the “Kimchi premium,” referring to the extraordinarily high trading price in Korea compared to the world’s average, still lingered.

An online petition posted on the Korean presidential office’s website demanding that the government change its “anti-cryptocurrency stance” had drawn nearly 170,000 names, as of 1 p.m. Sunday.

Following a joint measure unveiled in December, Korea has been moving to allow cryptocurrency transactions only through real-name accounts provided by local banks.

However, amid negative public sentiment over various cryptocurrency measures, some commercial banks have indicated they would delay plans to supply real-name bank accounts for cryptocurrency transactions.

Shinhan Bank on Friday decided to hold it off on “growing controversy” here surrounding cryptocurrencies, even though it has finished developing the system, which was initially slated to take effect Friday.

Nonghyup Bank is also said to be taking a wait-and-see approach until the detailed guideline from the government is announced.

In a meeting Friday, the FSC met with officials from the banks and reportedly urged that regardless of how the overall measures on cryptocurrencies turn out, the real-name system should be introduced.

As part of the government’s efforts, the Financial Services Commission was reported Sunday to be preparing to impose penalties against cryptocurrency investors who refuse to verify their identities.

According to sources from financial authorities, those who refuse to comply with verification or a business entity that fails to install the verification system on cryptocurrency transactions will be subject to “various penalties.”

The consequences will be similar to fines in 1993 imposed on those failing to abide by a real-name banking system, according to the sources.

Holders of existing accounts that refuse to verify their identification would be banned from depositing money into those accounts, according to the plan.

Cryptocurrency exchanges will also be banned if virtual coins are traded through the exchanges’ corporate accounts with scores of users’ virtual accounts attached. Such corporate accounts, locally dubbed “beehive accounts,” are viewed to be susceptible to money laundering and hacking attacks.

These and other guidelines are expected to be officially unveiled after the financial authorities complete a joint inspection on commercial banks by the intelligence unit of the FSC and the Financial Supervisory Service on Tuesday.

Regarding taxation, the Ministry of Strategy and Finance is reportedly considering imposing either transfer tax or capital gains tax on cryptocurrency transactions.

Either of them, however, would be a tough choice. Cryptocurrency transactions are not easily traceable, making it hard to estimate figures for capital gains tax. Levying transfer tax would mean cryptocurrencies are brought to the mainstream financial landscape, contrary to the government’s intention.

The Finance Ministry has added it would be hard to collect tax from a trader who was given or inherited encrypted coins here, if the trader moves the coins to exchanges abroad, or has taken what are called “dark coins.”

By Son Ji-hyoung 
(consnow@heraldcorp.com)