South Korean banks are under investigation for their role in facilitating $6.5 billion in overseas remittances that have been linked to cryptocurrency arbitrage firms.
According to a Monday report by the Asia Times, The Financial Supervisory Service (FSS) last month ordered an investigation of South Korean banks after identifying a significant number of overseas remittance transactions in late June.
The investigation found that the majority of the $6.5 billion remitted abroad between January 2021 and June 2022 came from crypto exchange accounts before being sent out of the country, suggesting that some Korean companies are exploiting the “Kimchi (kimp) premium.”
The Kimchi premium is the gap in cryptocurrency prices on South Korean exchanges compared to foreign exchanges. Investors buy cryptocurrencies on foreign exchanges and sell them on local Korean exchanges for a profit.
Regulators have raised concerns about the kimchi premium trade as it encourages capital flight from the country.
Currently, the kimchi premium stands at a modest +3.37%, but it was already over +20% in Aprilaccording to market tracker CryptoQuant.
Reports from Shinhan Bank and Woori Bank found that Most of the money remitted was first transferred out of domestic cryptocurrency exchanges to various corporate accounts of Korean companies.
These large remittances have raised alarm bells that investors are using large sums of money to exploit the Kimchi premium, according to a Monday report by the local media outlet Asia Times.
There are also suspicions that the remitted funds are being used to launder money., according to the KBS media outlet on Sunday. Some employees of the unidentified companies that made the remittances were arrested.
The total amount sent abroad was more than double what the FSS expected to find. when he ordered the banks to investigate the matter. Asia Times reported that the FSS is now expected to carry out further on-site investigations of domestic banks, which could uncover more funds that have been remitted.
The FSS is expected to impose sanctions on Shinhan and Woori for allowing the largest amount of remittances. Asia Times wrote that Lee Bok-Hyeon, head of the FSS, said: “We are taking foreign exchanges seriously, and sanctions are inevitable.”
On-site investigations are ongoing at Shinhan and Woori, but will conclude on August 19.
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