Korea’s “big four” cryptocurrency exchanges have formed a joint venture to comply with the so-called “travel rule.”

The heads of Upbit, Bithumb, Coinone and Korbit signed an MOU at the Korea Blockchain Association headquarters on Tuesday to form the joint venture.

So, what is this travel rule about which we speak?

Well, you’ll recall that back in 2019, the Financial Action Task Force (FATF) intergovernmental organization issued a set of recommendations related to Virtual Asset Service Providers (VASPs), a.k.a. cryptocurrency exchanges.

These recommendations aim to prevent malicious actors from using crypto exchanges as places to launder money and finance terrorism.

One of those recommendations was the travel rule, which requires exchanges to collect sender and recipient information during crypto transactions above a certain threshold.

Now, this is controversial within the crypto community for philosophical reasons, namely, it might go against the spirit of cryptocurrency itself by rendering anonymous or pseudo-anonymous transactions impossible. But it’s also a headache for purely practical reasons, the most tricky being the issue of counterparty identification. 

One critic put it this way:

To put it bluntly, these requirements would be pointless at best – when not impossible to follow.

But don’t take my word for it. Listen to what a law enforcement expert has to say.

Identifying owners of non-custodial wallets in majority cases simply cannot be done by private companies with reasonable certainty,” said Jarek Jakubcek, a strategy analyst at Europol, the European Union law enforcement agency. “Thus, mandating businesses to do something that cannot be done is an exercise in futility.”

Regardless, the travel rule will go into effect in Korea from March 25 of next year, when a one-year grace period ends. And in fact, the enforcement ordinance of Korea’s Act on the Reporting and Use of Specific Financial Transactions Information already mandates that exchanges provide the names and wallet addresses of senders and receivers in crypto transactions worth over KRW 1 million.

One solution under discussion is a universal SWIFT-like system for crypto exchanges, in contrast to the single solutions so far adopted by individual companies. And this seems to be what Korea’s big four exchanges are going for.

Meanwhile, South Korean financial authorities have launched a major monitoring and investigation effort directed at illegal crypto accounts, including so-called “beehive accounts.”

Beehive accounts have been described as “complicated, umbrella accounts that are run by small crypto exchanges to mask the identity of individual traders.”

Anyway, exchanges caught using illegal accounts could face suspensions.