The South Korean government provided 269 individual crypto traders with over $15 million in debt relief from a fund intended to help small companies.
The Financial Services Commission has vowed to overhaul selection processes after the Board of Audit and Inspection audited the operations of the New Start Fund.
“We will strengthen the selection criteria for potential recipients of New Start support,” said Shin Jin-chang, chair of the regulatory Financial Services Commission, per the South Korean news agency Yonhap.
However, despite the controversy the audit’s findings have stoked in South Korea, regulators concede only legal changes can stop crypto holders receiving more debt relief in the future.
Regulator wants legal reform
The New Start programme is operated by the Korea Asset Management Corporation, or KAMCO, a quasi-governmental body that manages non-performing loans. Seoul beefed up KAMCO’s role in the South Korean economy in the wake of the Asian Financial Crisis of 1997, which took a devastating toll on the country’s finances.
To avoid a repeat of 1997, a time when scores of small businesses went out of business, the government launched the New Start Fund in 2022.
The fund’s goal was to provide debt relief for companies hit by the effects of the coronavirus pandemic. Its stated aim was to reduce struggling small business owners’ debts by at least 60%.
However, the Board of Audit and Inspection’s audit found that scores of individuals received payouts despite having hidden assets and sources of income, such as cryptocurrencies.
The board released a case study of an individual named in its report as “B.” B received debt relief worth $62,350 from the fund, wiping away 77% of their debt. But the audit discovered that around the time of the issuance, B was sitting on crypto holdings worth $307,000.
The commission said it was currently impossible for KAMCO to know whether New Start recipients have crypto unless borrowers make “voluntary declarations.”
But Shin said upcoming legal changes could help address this.
“If lawmakers vote in favour of a proposed amendment, currently pending in the National Assembly, KAMCO will gain new powers,” he explained. “KAMCO would be able to determine the unlisted stocks and cryptoassets held by fund recipients — even without their consent.”
Shin said the commission will “ensure that such information is not left undiscovered in the future.”
In the past few years, legal changes have given local and central tax bodies the power to order domestic crypto exchanges to hand over the crypto wallet details of habitual tax evaders. If tax officials find these citizens have crypto holdings, they can freeze and even liquidate these coins.
In more recent months, the government has extended these powers to other local government bodies, allowing them to liquidate citizens’ crypto holdings in the case of outstanding traffic fines and unpaid water bills.
The legal amendment in question seeks to give KAMCO similar powers to those currently enjoyed by these local government bodies.
