Regulators say the amount of illegal kimchi premium trading by South Korean banks could be as high as $6.5 billion – and the country’s authorities say they are investigating “all” of the country’s commercial banks.
As previously reported, banks have landed in hot water over the kimchi premium business after it was discovered that private and corporate clients – including several local shell companies – used South Korean financial institutions to transfer money in and out of the country. Kimchi premium arbitrage efforts.
In recent years, crypto fever has seen a significant increase in local demand for tokens such as Bitcoin (BTC). This has also created a “Kimchi Premium”, whereby coins in South Korea are overvalued (compared to the global average). This has led some traders to buy tokens from over-the-counter (OTC) providers in China, Japan and elsewhere in East Asia. South Korean traders then dump these coins on local platforms, reaping huge profits (in some cases over 30%).
Inspectors distributed these profits to various shell companies and then sent the money to US dollar accounts in foreign financial institutions. Some bought valuable assets such as precious metals overseas – using South Korean banks.
In the beginning, Financial control service (FSS) revealed that only two banks may have breached the offshore remittance regulations. Woori Bank And Shinhan Bank.
The FSS requires banks to carefully monitor remittances abroad, and in the past year or so, it has reportedly “repeatedly” warned all South Korean banks to be careful about transfers involving kimchi premiums.
Last month, the FSS said it believed $3.37 billion may have been sent overseas by various traders using local banks. Banks have begun conducting internal audits, and many have uncovered suspicious-looking transactions.
The FSS, Asia Times reported, responded by revising its estimate to nearly $6.5 billion – almost double the original estimate. “All banks” are now under investigation, he said. When internal investigations of banks are completed, the FSS may conduct its own “on-site” investigations.
The FSS said that punitive action against the banks was “inevitable” and that it was taking the matter “extremely seriously”.
Late last week, one of the shell companies involved in several questionable transactions was raided by prosecutors.
Described as a very small “trading” company, the firm is based in Daegu, in the south of the country, and is said to have “sent large sums of money overseas to import gold bars and semiconductor chips”.
Some $5 billion in transactions appear to be linked to the firm, YTN reported, and prosecutors have so far “confirmed” that the company imported more than $305 million of the proceeds from crypto sales for chips and gold.
Prosecutors have arrested three individuals who they say are related to the organization for violating the Foreign Exchange Trading Act.
Prosecutors indicated that the firm or individuals associated with it would make their initial purchases of Japan-based OTC providers.
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