South Korea’s Financial Services Commission (FSC) is considering implementing a “payment freeze” system to prevent suspected crypto market manipulators from concealing or withdrawing illicit proceeds.
The proposal of a payment freeze would empower authorities to temporarily freeze virtual asset accounts prior to court proceedings, addressing a significant enforcement gap under current law.
On January 6, the financial authorities revealed that the FSC examined the payment freeze proposal at its regular meeting in November of last year. The discussion occurred while the Commission was deciding whether to file charges against suspects of virtual asset price manipulation.
Factually, a payment freeze is a measure that limits the amount of money that can be withdrawn, transferred, or paid from an account.
FSC proposes a payment freeze to prevent virtual asset losses
At the FSC meeting, the committee noted that, under the current Virtual Asset User Protection Act, the confiscation or recovery of unlawful gains from virtual assets typically requires a prosecutor’s investigation. The Commission also noted that seizing illegal gains from virtual assets requires a court warrant, which raises the risk of assets being transferred during this time period.
One committee member cited the mechanism for suspending payments for accounts suspected of stock manipulation. The suspension of payments was implemented through the modification of the Capital Markets Act in April of last year.
In September of last year, the Joint Stock Price Manipulation Eradication Task Force uncovered the “first scandal” and suspended payments to 75 accounts in a 100 billion won stock price manipulation case involving a coalition of affluent individuals. The scandal was the first domestic case handled by the joint task force against stock manipulation, involving the preemptive freezing of accounts suspected of unfair trade.
At the time of suspension, the alleged offenders had mobilized around 100 billion won and generated 40 billion won in market profits. Of this, 20 billion won was realized, with the remaining 20 billion won as unsold stocks. The financial regulators froze the accounts, preventing gains from being withdrawn.
The Joint Stock Price Manipulation Eradication Task Force was formed in July of last year. The task force includes officials from the FSC, the Financial Supervisory Service (FSS), and the Korean Exchange. The task force was formed to detect and investigate illegal and unfair stock trading practices, a key policy emphasized by President Lee Jae Myung.
During the meeting, the member in question stated, “The suspension of payments on 75 accounts in Case No. 1 was very strong,” adding, “That way, we can freeze unrealized profits so they cannot be sold.” It would be beneficial to have a comparable suspension scheme in the Virtual Assets Act.”
Newsis, a local news outlet, disclosed that during the meeting, a member commented that suspension of payments is a first step to collection and preservation, so it would be prudent to undertake it in advance. The member urged the committee to consider how many of the provisions in the Capital Markets Act on unfair trade practices can be represented in the Phase 2 Virtual Assets Act bill,” reaching an agreement.
The local news outlet reported that some committee members argued that such a system is even more crucial in the case of virtual assets, which are particularly easy to conceal once transferred to personal wallets.
Cyptopolitan revealed that between 2020 and September of last year, FSC froze crypto assets worth $18.9 million in 30,106 cases.
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