Criminals in South Korea who make more than five billion Korean won, roughly equivalent to $3.76 million, from crypto crimes now face life in prison, the Asian country’s financial services regulator reported, cited by Yahoo.
On Wednesday, they posted a notice of proceeding with the preparations for the Virtual Asset User Protection Act, expected to come into force on July 19 this year.
The new law will prohibit using fraudulent trading practices and market manipulation to commit crypto crimes. A fine of up to five times the amount of the illegitimate profits may be imposed.
A global tendency toward tightening regulations
South Korea’s legislative efforts signify a global tendency toward tightening crypto regulations, reflecting rising concerns over the risk of using these digital assets to commit crypto crimes.
In January, the UN alarmed that Tether’s USDT, the biggest stablecoin by market cap, was becoming a medium for money laundering in East and Southeast Asia.
In 2020, South Korea ranked seventh in the world on the Global Crypto Adoption Index. It had dropped out of the index’s top 20 by 2022, when the Terra Luna ecosystem collapsed. The platform’s failure wiped out $40 billion from the market, causing insurmountable losses to hundreds of thousands of people from these crypto crimes.
Interpol issued Red Notice for Do Kwon
After the spectacular collapse, South Korean authorities asked Interpol for a Red Notice for the cofounder of Terraform Labs. In March 2023, he was arrested in Montenegro with fake travel documents, preparing to board a flight to the UAE.
A few hours later, his crypto crimes finally caught up with him. New York prosecutors charged him with eight counts of fraud, including commodities fraud, securities fraud, and wire fraud. He currently faces charges for crypto crimes in the US and his homeland of South Korea.
The onus is on prosecutors to prove he committed the crypto crimes he is charged with, which might prove difficult. A Slack conversation between Do Kwon and fellow cofounder Daniel Shin was included in a court filing dating from 2019. Allegedly, Kwon and Shin plotted to manipulate transactions to get people to buy into Chai Corporation, a Seoul-based payment processing company that they founded in 2019. Terraform Labs and Chai Corporation shared an office.
Kwon suggested “creating fake transactions that look real.” He rejected this information as evidence he committed crypto crimes, insisting it was taken out of context.
Crypto crimes in the US: The cases of SBF and CZ
In November 2023, FTX founder Sam Bankman-Fried was found guilty of seven criminal charges. He faces more than a century in prison. However, it’s not clear how long he’ll actually remain in prison. Judge Lewis Kaplan will spend several months deliberating by himself, CNBC wrote.
Bankman-Fried was convicted of a host of crypto crimes, including conspiring to commit securities fraud and conspiracy to commit commodities fraud against FTX investors, wire fraud against FTX customers and against Alameda Research lenders, and conspiracy to commit money laundering.
According to Yesha Yadav, a law professor at Vanderbilt University, the jury was already convinced of his guilt as it only took them a few hours to reach a verdict. The sentence is up to Judge Kaplan, and the jury’s “overwhelming consensus” should lead to a more severe sentence, Prof. Yadav believes.
The maximum possible sentence for his crypto crimes is around 115 years, but there is a sliding sentencing scale. US Justice Department prosecutor Renato Mariotti expects SBF to spend 20-25 years in prison.
Will CZ do any time at all?
Changpeng "CZ" Zhao, the founder and former CEO of Binance crypto exchange, was released on a bond of $175 million after admitting to violations of the Bank Secrecy Act. This is the highest penalty ever paid by a corporate defendant in a criminal matter. According to the SEC and other authorities, Binance let US customers sign up without proper KYC or anti-money laundering procedures in place.
CZ awaits sentencing in February, but is not expected to do extensive time, if any. Binance paid a whopping fine of $4.3 billion to various watchdogs to atone for the crypto crimes. Moreover, the exchange will allow agencies to oversee its operations in the next five years. It also settled charges for crypto crimes with OFAC, CFTC, and FinCEN.
James Zhong stole $3B, got a year in prison
James Zhong from Georgia, US, got surprisingly little for his crypto crimes. He was found guilty of stealing over 50,000 Bitcoin from the Silk Road black market and darknet in 2012. At the time, the Bitcoin was worth $620,000. Authorities confiscated devices holding the stolen assets in 2021, when their value had gone up to $3.35 billion.
Zhong pled guilty to wire fraud and was sentenced to a year and a day in prison although his crypto crimes culminated in the second-biggest financial seizure in US history.
His case brings up the issue of fluctuating crypto value – from less than a million to $3.35 billion. It would take a degree of legislative effort to take that aspect into account when handing out sentences for crypto crimes.
Ethereum dev used crypto to evade foreign sanctions
In 2019, prosecutors in the Southern District of New York charged Ethereum Mainnet developer Virgil Griffith with conspiracy under the International Emergency Economic Powers Act. This was the first case where the DoJ publicized charges against a US citizen for specific crypto crimes, namely conspiring to use crypto to evade sanctions.
Allegedly, Griffith gave a presentation at a blockchain and crypto conference in North Korea on how to use this technology to launder money and evade international sanctions. In 2022, Griffith was sentenced to 63 months in prison. He is currently in a federal low-security prison.
11,196 years for the founder of Thodex in Turkey
Clearly, the US has a way to go before it “catches up” to South Korea where crime and punishment are concerned. As they say, everything is relative – it depends on where you commit crypto crimes. On that note, the case of Fatih Özer is worth mentioning. The founder of Thodex, a Turkish crypto exchange, was sentenced to 11,196 years in a Turkish prison. This is equivalent to 466 life sentences, Bloomberg reported.
Özer, his brother Güven and his sister Serap were charged with fraud, organizing and running criminal organizations, laundering criminal proceeds, and other transgressions not strictly considered crypto crimes. They were also sentenced to pay a fine of around $5 million in Turkish lira.
21 people were charged with crypto crimes in this case. Thodex was one of the biggest Turkish crypto exchanges before suddenly going offline in 2021. Almost half a million people lost a collective $2 billion. Özer fled to Albania, but was arrested by Interpol in August 2022.
He maintains his innocence. It’s not clear how much time he’ll end up doing for his crypto crimes, but a life imprisonment conviction in Turkey has a minimum term of 24 years.
The future of crypto crimes and punishment
It’s clear regulations are ramping up all over the world, perhaps excessively. With that, the hope is to prevent crypto crimes from occurring rather than stifle the market. Ultimately, it’s individuals and companies that decide what to invest in, and education and disclosures about this asset class would go a long way toward prevention.
Ideally, crypto should be placed on equal ground as real estate and stocks in the knowledge needed to make informed investment decisions. Education is all the more important given crypto’s inherent volatility and the corresponding risk of very grave consequences.
Contributors
