Crypto crime from South Korea to Cambodia surged 1,400-fold last year

South Korea’s crypto sector is under heightened scrutiny after transfers to Cambodia jumped 1,400-fold last year, exposing fresh anti-money laundering (AML) challenges for financial regulators.

The country’s largest crypto exchanges, Bithumb and Upbit, handled the highest volume of suspicious transfers. Bithumb facilitated about 12.4 billion won ($9 million) in transactions, while Upbit processed 366 million won ($271,000). The funds were sent to Huione Guarantee, a Cambodian online marketplace sanctioned by the U.S. and UK. Most of the transfers were made in USDT stablecoins.

“Realistically, it’s extremely difficult to detect all suspicious transactions on Korean exchanges before they occur,” said Youchull Jung, an attorney specializing in white collar crime at Lee & Ko in South Korea.

Jung said the movement of crypto from Korean to Cambodian exchanges reflect the cat-and-mouse dynamic in enforcement with reports filed and transactions blocked only after the money had already started to move.

Korea’s offshore financial crime crisis

Financial scams that funnel crypto to Cambodia has become a flashpoint in national politics. Lawmakers questioned the effectiveness and speed of regulators’ countermeasures at a parliamentary audit on October 27.

Jung explained that increased enforcement in South Korea has driven fraudsters to operate from overseas hubs in Cambodia and the Philippines where they work with local criminal networks.

Korea’s supercharged crypto market

South Korea has emerged as the world’s second-largest market for digital assets behind the United States. The Bank of Korea said the country’s five main exchanges held a combined $73 billion in assets at the end of 2024, with crypto trading volumes surpassing the stock market.

The boom led regulators to roll out a landmark digital asset law in 2024 that tightened oversight of exchanges and strengthened investor protections. The measure expanded the earlier AML Act in 2021 and introduced a Travel Rule requiring registered exchanges to share verified information on crypto transfers over one million won (approx. $800).

Regulatory arbitrage

While regulators have been busy building a framework for its domestic virtual asset space, criminal groups have exploited blind spots in cross border transfers, explained Jongbaek Park, an attorney specializing in digital assets at Bae, Kim, Lee law firm in South Korea.

The Foreign Exchange Transactions Act, first enacted in 1999, remains the country’s primary law on cross border payments and remittances. But it predates the rise of digital assets and doesn’t clearly define cryptocurrencies as a legitimate “means of payment,” leaving regulators and users operating in a legal gray area.

“Korea has very strict foreign exchange regulations. Under the current rules, anyone remitting securities must file a report with the Bank of Korea in advance,” said Park. “But it’s not clear whether crypto assets or blockchain tokens fall under that requirement.”

According to Park, transferring digital tokens without notifying the Bank of Korea could be in breach of the law.

High entry barrier for smaller exchanges

The AML act reshaped Korea’s crypto landscape. Before it took effect there were roughly 60 exchanges operating nationwide. After enforcement, only five were able to secure the real-name verified bank account needed to offer Korean won trading.

Tae Eon Koo, a fintech attorney at Lin Law Firm in South Korea, described the AML Act as both a strength and bottleneck.

The real-name trading system is a major component of South Korea’s crypto AML and KYC regulations. It forces crypto exchanges to form an official partnership with a bank.

“The requirement to secure a real-name verification partnership with a domestic bank is not written in law but enforced for AML reasons,” he said. “Without this, it makes it nearly impossible for new players seeking to compete with the established ‘Big 5’ exchanges, to enter the market.

He said that current regulation has effectively turned banks into gatekeepers to the Korean won market.

Attorney Jongbaek Park adds that regulators’ are “conservative” or ‘extremely selective’ when it comes to giving exchanges permission to directly convert cryptocurrency into fiat currency.

“The Financial Services Commission, as its policy, does not want banks to give bank accounts to many crypto exchanges. At the moment each bank is only allowed to give one bank account to one exchange.”

Breaking the crypto duopoly

Binance has regained access to South Korea’s crypto market after winning regulatory approval to acquire a 67% stake in local exchange GOPAX. The clearance from the KoFIU, granted on October 16, marks the first major foreign exchange to enter the market since the introduction of the Travel Rule. Binance exited the country in 2021 when it failed to secure a banking partner.

“Its re-entry is a big deal,” said Koo “Because it has the potential to break the current duopoly held by Upbit and Bithumb.”

Reverse discrimination

Some domestic exchanges have accused regulators of engaging in what they call “reverse discrimination,” where global giants such as Binance encounter fewer entry barriers by buying licensed local platforms in South Korea. Meanwhile, domestic exchanges say strict AML and banking rules continue to hold them back from expanding overseas.

“The current market sentiment is that existing regulation is not protecting fair competition,” Koo said. “Instead it may be creating an unbalanced playing field.”

But, he said Binance’s return could reshape that balance.

“Binance brings massive capital, operational expertise, and, most importantly, deep liquidity,” Koo said. “But how much influence it has will depend on whether regulators allow GOPAX to share its order book with Binance’s global platform.”

As global exchanges push in and local players push back, the long-term growth and credibility of its crypto market may hinge on how effectively South Korea can curb financial crime through digital channels.

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