CONTENTS
- 1. Violation of the Foreign Exchange Transactions Act | Case Overview
- 2. Violation of the Foreign Exchange Transactions Act | Judgments of the First and Second Instance
- - Summary of the Second Instance Judgment
- 3. Violation of the Foreign Exchange Transactions Act | The Supreme Court's Determination
- - Legal Issues and Significance
- 4. Violation of the Foreign Exchange Transactions Act | Assistance from Daeryun Law Firm LLP
1. Violation of the Foreign Exchange Transactions Act | Case Overview
This case concerning a violation of the Foreign Exchange Transactions Act centered on whether the defendants' conduct of receiving virtual assets (Tether, USDT) from a non-resident, selling them within the country, and receiving the proceeds in cash constituted a violation of the Foreign Exchange Transactions Act and the Act on Reporting and Use of Specific Financial Transaction Information.
Defendant 5 set up an office and hired several employees to buy and sell Tether with an unspecified number of persons over the counter, and Defendants 1, 2, 3, and 4 were responsible for delivering or managing the Korean won proceeds within the country at the direction of the non-resident party.
The prosecution, taking the view that they had engaged in foreign exchange business as an occupation without registration or reporting and had repeatedly carried out foreign exchange transactions comparable to “hwanchigi” (underground money transfer), indicted them on charges including violation of the Foreign Exchange Transactions Act, violation of the Act on Reporting and Use of Specific Financial Transaction Information, and violation of the Act on Regulation and Punishment of Criminal Proceeds Concealment.
2. Violation of the Foreign Exchange Transactions Act | Judgments of the First and Second Instance
The court of first instance recognized that Defendant 5 had repeatedly bought and sold virtual assets with an unspecified number of persons and received cash, and it found him guilty of violating the Act on Reporting and Use of Specific Financial Transaction Information by operating a virtual asset trading business without reporting.
The court also found Defendant 5 partially guilty, holding that the act of receiving virtual assets from a non-resident and paying Korean won within the country constituted a violation of Article 8, Paragraph 1 of the Foreign Exchange Transactions Act (unregistered foreign exchange business).
As to Defendant 2, the court held that he was not a “person who operated a virtual asset trading business” and acquitted him of the violation of the Act on Reporting and Use of Specific Financial Transaction Information, but it found the violation of the Foreign Exchange Transactions Act guilty.
Defendants 1, 3, and 4 were found guilty of violating the Foreign Exchange Transactions Act, as it was recognized that they had received and delivered Korean won at the direction of the non-resident organization.
The seized cash was recognized as criminal proceeds, and partial confiscation and collection of equivalent value were pronounced.
Summary of the Second Instance Judgment
The lower court largely upheld the conclusions of the first instance.
As to Defendant 5, it affirmed the conviction for violating the Act on Reporting and Use of Specific Financial Transaction Information as well as the partial conviction for violating the Foreign Exchange Transactions Act, and as to Defendant 2, it maintained the acquittal of the violation of the Act on Reporting and Use of Specific Financial Transaction Information on the ground that he was not a party subject to the reporting obligation, while maintaining the conviction for violating the Foreign Exchange Transactions Act.
The court held that Defendants 1, 3, and 4 fell under Article 3, Paragraph 1, Item 16, Subitem (e) of the Foreign Exchange Transactions Act (“business incidental to the foreign exchange business under Subitem (b)”) and maintained the conviction.
The lower court also ruled that the 14,000 fifty-thousand-won notes in cash held by Defendant 5 be confiscated and collected as equivalent value pursuant to Article 8, Paragraph 1 of the Act on Regulation and Punishment of Criminal Proceeds Concealment.
3. Violation of the Foreign Exchange Transactions Act | The Supreme Court's Determination
The Supreme Court found that Defendant 5's act of receiving virtual assets from a non-resident and paying the price in Korean won within the country amounted to engaging in the foreign exchange business under Article 3, Paragraph 1, Item 16, Subitem (b) of the Foreign Exchange Transactions Act as an occupation.
The core determination was that where a payment in Korean won is made within the country in a transaction with a non-resident and such conduct is repeated, this may be assessed as a foreign exchange transaction concerning payment and receipt between a foreign country and the domestic territory, and thus as foreign exchange business conducted without registration.
The Court held that “business character” was recognized in that Defendant 5 maintained an office and even hired employees to repeat transactions continuously, and it upheld the convictions for violating both the Act on Reporting and Use of Specific Financial Transaction Information and the Foreign Exchange Transactions Act.
By contrast, as to Defendants 1, 3, and 4, the Court determined that merely delivering Korean won is difficult to regard as performing foreign exchange business, and it is difficult to conclude that they made an indispensable contribution to Defendant 5's business conduct, and it reversed the convictions.
The Court also held that the lower court's failure to sufficiently examine whether Defendant 2 was a joint principal constituted a misapprehension of the law, and it reversed and remanded the part concerning the violation of the Act on Reporting and Use of Specific Financial Transaction Information.
Ultimately, the Supreme Court dismissed Defendant 5's final appeal and remanded part of the case as to Defendants 1, 2, 3, and 4.
Legal Issues and Significance
· The character of payment conduct using virtual assets under the Foreign Exchange Transactions Act
The Supreme Court recognized that the act of remitting foreign funds into the country or paying domestic Korean won through virtual assets can perform a function substantially identical to the remittance business of a foreign exchange bank.
This is a determination recognizing that virtual assets can become a means of foreign exchange transactions beyond a means of investment, and it is a case in which the scope of application of the Foreign Exchange Transactions Act was expanded.
· Clarification of the scope of application of the virtual asset service provider reporting system
This judgment held that, unlike person-to-person transactions, where one repeatedly and commercially brokers virtual asset transactions with an unspecified number of persons, a reporting obligation arises as a “virtual asset service provider.”
· The criteria for the establishment of a joint principal
The Court held that even a mere participant may be established as a joint principal if that person substantially controlled or took a leading part in the business conduct, and that the same applies where a person without the relevant status takes part in a status offense.
This judgment made clear that unregistered foreign exchange transactions using virtual assets may be subject to punishment under the Foreign Exchange Transactions Act.
In particular, in that a “virtual asset transaction” may be interpreted expansively as conduct comparable to a foreign exchange transaction, it warns of the legal risks of new types of financial services such as international fund transfers or payment agency services using virtual assets.
Where a company or an individual carries out remittance or settlement business with a non-resident through virtual assets, it should be borne in mind that a violation of the registration or reporting obligation may lead to criminal punishment.
Where foreign exchange or virtual asset transactions are combined with money laundering, the concealment of criminal proceeds, or similar conduct, complex legal liability may arise, so it is necessary to review the structure through professional advice from the early stage.
4. Violation of the Foreign Exchange Transactions Act | Assistance from Daeryun Law Firm LLP
Daeryun Law Firm LLP operates an integrated response system in which attorneys experienced in finance, attorneys experienced in international trade, foreign-licensed attorneys (United States) advising on U.S. law, and customs experts holding the licensed customs broker qualification collaborate, with a focus on the fields of finance and international trade, including the Foreign Exchange Transactions Act, the Act on Reporting and Use of Specific Financial Transaction Information, and anti-money-laundering law.
Where, as in this case, a foreign exchange transaction mediated by virtual assets becomes an issue, comprehensive advice is available across all stages, including ▲ analysis of the actual structure of the virtual asset transactions, ▲ review of the registration obligation and sanction risks under the Foreign Exchange Transactions Act, ▲ strategy for responding to criminal accusations and pursuing non-prosecution, and ▲ defense against seizure and collection of equivalent value under the Act on Regulation and Punishment of Criminal Proceeds Concealment.
In particular, Daeryun responds together with attorneys experienced in international transactions, finance, and virtual asset matters and customs experts holding the licensed customs broker qualification, supporting clients beyond criminal defense to the establishment of practical institutional responses and systems to prevent recurrence.
Companies and individuals exposed to the risk of violating the Foreign Exchange Transactions Act or virtual-asset-related laws may prevent legal disputes through advance advice, and where an investigation has already commenced, it is important to obtain prompt professional assistance.
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