Prosecutors in Korea have ruled that it’s not illegal for somebody living in Korea to send money to a wallet they own at an overseas cryptocurrency exchange and purchase cryptocurrency, in this case to engage in a little “Kimchi Premium” arbitrage.
Prosecutors in two districts in Seoul recently decided not to indict two individuals (article in Korean) charged with violating Korea’s Foreign Exchange Transactions Act, judging that what the suspects were accused of didn’t actually constitute a crime.
Between December 2017 and April 2018, the accused sent a considerable total of US dollars and Euros to a wallet they opened at an overseas cryptocurrency exchange, acquiring points in the process. They used those points to purchase cryptocurrency, which they sent back to a wallet at a local cryptocurrency exchange.
In so doing, they took advantage of cryptocurrency’s high price in Korea relative to overseas, the so-called “Kimchi Premium.”
The Financial Supervisory Service (FSS), Korea’s financial watchdog, took a dim view of this. Claiming that remitting money to one’s own wallet at an overseas cryptocurrency exchange could be considered an overseas deposit under the Foreign Exchange Transaction Act, the FSS charged that the individuals should have reported their transaction first. Since they did not, the regulators asked prosecutors to press charges.
Prosecutors, however, saw things differently. They judged 1) that sending money to your own wallet at an overseas cryptocurrency exchange did NOT constitute a deposit or loan as defined by the Foreign Exchange Transactions Act; 2) that the name on the account related to an overseas bank was that of the cryptocurrency exchange, not the accused; and 3) that the transactions did not constitute a contract between the accused and an exchange or overseas bank guaranteeing interest payments.
Moreover, prosecutors judged that purchasing points did not constitute a means of foreign payment, nor did it constitute a bond purchase or some other form of capital transaction.
So, to make a long and legally complicated story short, prosecutors decided not to charge the individuals.
The lawyers for the accused said the prosecutors’ decision reaffirmed the constitutional principle that laws should be strictly interpreted, protecting individuals against attempts by authorities to go after them by excessively expanding the scope of clearly written statutes.
The impact of the prosecutors’ decision could extend beyond currency arbitrage. For instance, prosecutors might take a similar view of remitting funds overseas for the purpose of participating in an ICO, though their opinion on the matter could change according to the nature of the coin in question. Of course, we won’t know for certain until we see an actual test case.
