South Korea’s integrated financial regulator – Financial Supervisory Service (FSS) – is reportedly investigating domestic and commercial banks after detecting a significant amount of illegal overseas remittance transactions.
Over the last few weeks, banks’ role in facilitating kimchi premium traders to enable fast money when trading volumes rise has been under intense scrutiny. It was earlier speculated that these financial institutions were used by individuals and corporate players in addition to multiple suspected domestic shell companies in a bid to transfer funds in and out of the country to fund significant kimchi premium arbitrage efforts.
The regulators have now claimed that the amount of kimchi premium trading conducted could be around $6.5 billion (8.5 trillion KRW).
South Korean Regulators’ Steps Up Scrutiny
According to a report by Asia Times, a major portion of the funds remitted overseas between January 2021 and June 2022 were found to have originated from cryptocurrency exchange accounts that were later moved out of the country. The watchdogs are suspecting that some of the firms may have been exploiting the kimchi premium.
Woori Bank and Shinhan Bank were the two financial institutions flagged by the FSS for violating foreign remittances regulations. However, many are in the firing line following the investigation. The supervisor had previously estimated around $3.37 billion to have been remitted overseas by several traders with the help of domestic banks. Following this, these banks initiated internal audits and found many strange transactions.
Reports also suggested that some of these remitted funds are being used for money laundering.
The Kimchi premium is essentially the gap in prices of crypto-assets in South Korean exchanges as compared to overseas trading platforms. As such, traders purchase these assets from foreign exchanges and later sell them on domestic ones for a profit. The main concern is that this trading fosters capital outflow from the company.
As a result, the FSS has expressed urgency in the matter and also revealed that it is keen on taking punitive actions against the banks. The latest development comes a week after one of the suspected Daegu-based shell firms, believed to have been facilitating many suspicious transactions, was raided by authorities. It allegedly moved large sums of money overseas to “import gold bars and semiconductor chips.”