In recent years, the battle against digital-asset crime has surged to the forefront in South Korea — but new developments reveal that enforcing anti-money-laundering (AML) measures in the crypto space is far from straightforward. A startling increase in cross-border transfers, the involvement of large domestic exchanges, and legal loopholes are exposing structural weaknesses in the system.
Background & key figures
According to regulatory data obtained by lawmakers, South Korean crypto exchanges processed a dramatic surge in transfers to Cambodian counterparties: for example, transactions with the Cambodian platform Huione Group’s virtual-asset arm skyrocketed nearly 1,400-fold to around 12.8 billion won (≈ US $8.9 million) in 2024. The vast majority of the flows were denominated in the stablecoin Tether (USDT), which is known for high liquidity and ease of conversion—a preferred vehicle for illicit transfers.
The major Korean exchanges under scrutiny include Bithumb (which had the bulk of the volume) and Upbit (which recorded notable new flows). While South Korea is now considered the world’s second-largest crypto market (behind the U.S.), with assets estimated at US $73 billion across major domestic platforms.
What the surge reveals: AML gaps & regulatory issues
-
Cross-border blind spots
Even as domestic regulations tighten, criminal actors are operating offshore or shifting flows abroad to skirt controls. Transfers to high-risk jurisdictions such as Cambodia (and reportedly the Philippines) show that strengthening domestic rules alone is insufficient. -
Regulatory jurisdiction mismatch
South Korea’s key foreign-exchange regulation, the Foreign Exchange Transactions Act (1999), predates crypto and lacks clear definitions for digital tokens, resulting in ambiguity over whether virtual assets are subject to the same remittance rules as other securities. This leaves a regulatory grey zone which actors exploit. -
High barriers for smaller players, oligopoly risk
The domestic AML regime has raised entry costs significantly: smaller exchanges struggle to secure real-name bank accounts, while large incumbents dominate. One effect is an oligopolistic market structure that may limit innovation and competition in exchange oversight. -
Stablecoins as preferred laundering vector
USDT in particular features prominently as the vehicle for high-volume cross-border flows. Its stable value and liquidity make it ideal for moving funds quickly and invisibly into or out of regulated jurisdictions.
What South Korea is doing / responses
In response, South Korean regulators have begun to tighten AML oversight. Domestic exchanges responded: for instance, Upbit’s operator reported suspect flows to authorities; Bithumb blocked all deposits/withdrawals tied to Huione in May 2025. Moreover, the Financial Services Commission (FSC) and related agencies emphasised the need for amendment of foreign-exchange rules and stricter crypto-asset monitoring.
Why gaps persist despite the crackdown
-
Speed of crypto innovation: Regulatory frameworks struggle to keep pace with evolving token types, cross-border flows, and new laundering techniques.
-
Offshore exposure and jurisdictional arbitrage: Criminals leverage weaker AML regimes abroad and transfer funds from regulated local exchanges to offshore platforms.
-
Data and screening limitations: Detecting illicit flows before they exit the system remains highly challenging, especially with high-volume, low-value transactions aggregated. One Korean attorney notes: “Realistically, it’s extremely difficult to detect all suspicious transactions on Korean exchanges before they occur.”
-
Banking partnerships as chokepoints: Because only a handful of banks grant real-name accounts to exchanges, the market structure may inadvertently push flows into opaque channels.
Implications & outlook
-
For regulators: It’s clear that AML regimes must adopt a more holistic, cross-border lens. Cooperation with jurisdictions such as Cambodia—and coordination on high-risk platforms—is essential.
-
For exchanges: Platforms must enhance due diligence not just on customers, but on counterparties, offshore transfer destinations, and stablecoin‐outflows.
-
For the broader crypto market: If major markets like South Korea cannot secure clean flows, the perceived legitimacy of crypto ecosystems is eroded, which may impede institutional adoption or invite heavier regulation.
-
For investors/users: Participation in jurisdictions with weak AML enforcement raises systemic risks—platforms may be sanctioned, access to fiat might be cut, or scrutiny may increase.
Conclusion
South Korea’s recent surge in suspect crypto transfers—especially to high-risk jurisdictions such as Cambodia—serves as a stark reminder: even in one of the world’s most regulated crypto markets, serious AML gaps remain. The intersection of rapid technological change, cross-border transfer complexity, and regulatory lag creates fertile ground for illicit finance. To close these loopholes, the response must go beyond tightening domestic rules—it must encompass global collaboration, real-time monitoring, and adaptive frameworks that evolve with the technology.
Ready to start your cryptocurrency journey?
If you’re interested in exploring the world of crypto trading, here are some trusted platforms where you can create an account:
- Binance – The world’s largest cryptocurrency exchange by volume.
- Bybit – A top choice for derivatives trading with an intuitive interface.
- OKX – A comprehensive platform featuring spot, futures, DeFi, and a powerful Web3 wallet.
- KuCoin – Known for its vast selection of altcoins and user-friendly mobile app.
These platforms offer innovative features and a secure environment for trading and learning about cryptocurrencies. Join today and start exploring the opportunities in this exciting space!
Want to stay updated with the latest insights and discussions on cryptocurrency?
Join our crypto community for news, discussions, and market updates: CryptoBCC on Youtube | Telegram | Facebook | Discord | X(Twitter)
For collaborations and inquiries: CryptoBCC.com@gmail.com
Disclaimer: This is not investment advice. Cryptocurrency investments carry high risk. Always conduct your own research.
