Violation of the Foreign Exchange Transactions Act | Korea Customs Service to Conduct Year-Round Standing Intensive Inspections of "Illegal Trade and Foreign Exchange Transactions in Response to High Exchange Rates"

The core of this initiative is that the Korea Customs Service will make illegal foreign exchange transactions that may undermine exchange rate stability a target of standing intensive enforcement, and will focus its inspections in particular on three principal types that abuse trade transactions.

· Three Principal Types Abusing Trade Transactions

The Korea Customs Service identified the above conduct as the three principal types and made clear its policy to rigorously investigate transaction structures that may trigger or amplify high exchange rates.

The Korea Customs Service plans to form and operate a dedicated organization (task force) for enforcement against illegal trade and foreign exchange transactions in response to high exchange rates until exchange rates stabilize.

The task force will consist of a dedicated information-analysis and command team within the Korea Customs Service and 24 foreign exchange investigation teams at customs offices nationwide, and it stated that it will monitor the progress of foreign exchange examinations and investigations at each customs office so that rigorous enforcement is carried out under uniform standards.

In terms of foreign exchange examinations, following its initial pursuit on December 26, 2025, of a special enforcement plan targeting 35 companies suspected of unlawfully failing to collect export proceeds, it announced a plan to conduct foreign exchange examinations of a group of 1,138 companies that appear to have a large gap between the import-export amounts declared to customs and the trade proceeds paid to and received from banks.

The target group of companies (1,138) is broken down into 62 large enterprises (6%), 424 mid-sized enterprises (37%), and 652 small and medium-sized enterprises (57%), and the approach is that, after being allocated in consideration of factors such as the jurisdiction of customs offices that handle a large share of foreign exchange examination work, including Seoul, Busan, and Incheon, the work will begin first with the highest-risk companies through additional information analysis.

In addition, it stated that, beyond the target companies, it will examine the risk of illegal foreign exchange transactions through standing monitoring of companies with large gaps.

Conduct in which trade proceeds that should be brought into the country are left uncollected over the long term without declaration or ex post facto reporting, or in which collection is improperly evaded through a sham transaction structure, is subject to priority enforcement.

Even where reasons such as "retained at an overseas branch," "local practice," or "cash settlement" exist, a finding of a violation may become an issue if the entity has not established a declaration and reporting framework.

Conduct that settles trade proceeds through alternative means, such as unauthorized money transfer (hwanchigi) or virtual assets, instead of payment and receipt through banks, thereby hindering the circulation of dollar liquidity, is likewise subject to enforcement.

In particular, a structure that settles consideration in a form of value other than cash, such as goods or points, may also raise reporting-obligation issues from the standpoint of foreign exchange transactions.

Conduct in which export prices are under-declared so that the difference is retained abroad, or import prices are over-declared so that excessive foreign currency flows out, is the principal target.

This type is characterized by heightened criminal risk, as it extends beyond Foreign Exchange Transactions Act issues and may be combined with the Customs Act, the Foreign Trade Act, and the Act on Aggravated Punishment of Specific Economic Crimes.

In a structure where an overseas branch collected the head office's external receivables or paid expenses, Company A did not bring cash collected overseas into the country but instead retained it at its overseas branch and later used it to repay overseas debts. In doing so, "payment not made through a foreign exchange business institution" became an issue, as the company did not file a declaration with the foreign exchange authorities.

As the basis for application, Article 16, Item 4 of the Foreign Exchange Transactions Act (which, in principle, imposes a declaration obligation where there is a payment not made through a foreign exchange business institution, among other cases) was cited, and an administrative fine of the greater of KRW 2 million per violation or 4% of the amount in violation was imposed.

This is a case in which consideration for overseas promotional services was paid in in-game goods (game money), rather than in cash or other means of payment, without filing a declaration.

This was likewise treated as a violation of the declaration obligation under Article 16, Item 4 of the Foreign Exchange Transactions Act, and the administrative fine standard was presented as the same as for Company A.

In practical terms, it shows that a foreign exchange issue is not resolved by the mere circumstance that "no cash changed hands," and that the nature of the consideration, the settlement structure, and the substance of the payment may become the issues.

This is a case in which, despite a structure with no actual payment because the import proceeds (debt) and the commission (receivable) were to be set off against each other, the company interposed a Hong Kong paper company, submitted false documents to a bank, moved the funds abroad, and then used them for personal purposes.

As the applicable provisions, Article 4 of the Act on Aggravated Punishment of Specific Economic Crimes (flight by moving, concealing, or disposing of assets abroad in violation of statutes), among others, was cited, and because the punishment is imprisonment for one year or more or a fine of two to ten times the value of the object, the criminal risk is very high.

In matters involving violations of the Foreign Exchange Transactions Act, foreign exchange examinations and investigations often have a structure in which the issues become fixed at the stage of the initial submission of documents and statements.

In particular, companies for which a gap between the amount declared to customs and the trade proceeds at the bank has become an issue risk having the matter expand beyond an administrative fine issue into an investigation if they do not organize and proactively address the following points.

Accordingly, when a company receives notice of a foreign exchange examination or the commencement of an investigation, first reviewing the transaction structure and foreign exchange flows and carefully designing the direction of the initial response from the standpoint of legal principles and evidence is the starting point for reducing potential disadvantages.