Violation of the Real-Name Financial Transactions Act | Supreme Court Establishes the Definition of a Virtual Asset Service Provider

This is a case arising from a violation of the Real-Name Financial Transactions Act, in which the issue was whether the defendant qualified as a virtual asset service provider.

The defendant, in conspiracy with accomplices, repeatedly engaged in arbitrage trading by purchasing virtual assets on a Japanese virtual asset exchange, selling them on a Korean virtual asset exchange, and then remitting the funds back to Japan.

The defendant accepted a proposal from a non-indicted party 1 to pay a commission of 0.3 to 0.5 percent of the money remitted to the account of a non-indicted company, and took part in the above arbitrage trading. Using the money deposited into the account of non-indicted Company A, the defendant was responsible for purchasing virtual assets on the Japanese virtual asset exchange and transferring them to the virtual asset digital wallet designated by the non-indicted party 1.

Through this, a total of approximately 177.8 billion won was deposited into the account of non-indicted Company A over 77 occasions.

In the course of this process, the defendant received a fixed percentage of the transaction amount as a commission and continuously carried out the transactions as a business activity without reporting to the Korea Financial Intelligence Unit.

The defendant was indicted for violation of the Act on Reporting and Use of Certain Financial Transaction Information and for violation of the Real-Name Financial Transactions Act.

The principal issues in this case were whether the defendant was a virtual asset service provider subject to the Real-Name Financial Transactions Act and whether the defendant had repeatedly conducted transactions using a borrowed-name account.

This was because, if the defendant was a virtual asset service provider, the conduct would constitute a violation of the Real-Name Financial Transactions Act, and the defendant would be found to have breached the reporting obligation.

With respect to the violation of the Real-Name Financial Transactions Act, the Supreme Court found that the defendant qualified as a virtual asset service provider and that the transactions using the non-indicted company's account constituted violations of the Real-Name Financial Transactions Act and the Act on Reporting and Use of Certain Financial Transaction Information.

As the lower court had done, the Supreme Court found that the defendant qualified as a virtual asset service provider.

The court found that the defendant, who violated the Real-Name Financial Transactions Act, qualified as a virtual asset service provider because the defendant repeatedly carried out the brokering of the purchase, sale, and transfer of virtual assets for the benefit of an unspecified number of persons and received commissions in return.

Whether there has been a violation of the Real-Name Financial Transactions Act is a matter that must be confirmed for safe virtual asset transactions.

The real-name financial transaction system is a regime that prohibits pseudonymous and borrowed-name transactions and seeks to secure the transparency of financial transactions, and the requirement to verify real names in virtual asset transactions is based on this system.

This real-name verification system was established to enhance the transparency of virtual asset transactions, to prevent illegal money laundering, and to protect investors.

Virtual assets are inherently characterized by anonymity and decentralization, which is why they often become subject to violations of the Real-Name Financial Transactions Act.

In particular, because large-scale transfers of funds may be carried out through transactions using borrowed-name accounts or anonymous wallets, whether there has been a violation of the Real-Name Financial Transactions Act is emerging as an important issue.

The Act on the Protection of Virtual Asset Users, which took effect in July 2024, was enacted to introduce a supervisory and inspection system similar to that for financial institutions in virtual asset transactions and to enable market surveillance of unfair trading practices and prompt investigation.

The financial authorities are strengthening the soundness of the virtual asset market by building the relevant infrastructure.

The real-name financial transaction system provides a key foundation for enhancing the transparency of virtual asset transactions and serves to effectively prevent money laundering and illegal conduct.

The attorneys handling financial matters at Daeryun Law Firm LLP 🔗attorneys experienced in financial matters, including attorneys with experience at the Fair Trade Commission, the financial investigation division of the prosecutors' office, and public financial institutions, work to protect the legitimate interests of their clients.