South Korea’s Crypto Crossroads: Curbing Crime vs. Fostering Innovation

South Korea’s Financial Intelligence Unit (FIU) reported a record 36,684 suspicious crypto transactions in 2025, surpassing the combined totals of the previous two years. These suspicious transaction reports (STRs) were filed by virtual asset service providers (VASPs) between January and August, a figure that dwarfs the 35,734 STRs recorded in 2023 and 2024 combinedSouth Korea Flags Record Suspicious Crypto Transactions in 2025^[1]. The surge reflects a sharp rise in illicit activities, particularly “hwanchigi” schemes, where criminal proceeds are converted into crypto via offshore platforms and then routed into domestic exchanges for cashing out in won. From 2021 to August 2025, the Korea Customs Service (KCS) referred $7.1 billion in crypto-linked crimes to prosecutors, with 90% tied to hwanchigiSouth Korea Sees Surge in Suspicious Crypto Transactions in 2025^[2].

A notable case uncovered in May involved $42 million in illegal cross-border remittances using Tether (USDT). Two Russian nationals executed over 6,000 transactions between 2023 and 2024, exploiting stablecoins to bypass capital controlsSouth Korea’s FIU flags over 36,000 crypto txns in 2025, more than 2023 and 2024 total^[3]. This aligns with broader trends: STRs have grown exponentially, from 199 in 2021 to 36,684 in 2025, underscoring the escalating misuse of crypto for illicit financeCryptocurrency Money Laundering Cases Hit Record High^[4]. The KCS highlighted that 90.2% of the $7.1 billion in crypto-linked crimes were attributed to foreign exchange crimes, with stablecoins increasingly serving as intermediariesSouth Korea Sees Surge in Suspicious Crypto Transactions in 2025^[5].

Regulatory bodies are intensifying efforts to combat these threats. The FIU and KCS are pushing for systematic measures to track criminal funds and block disguised remittances. Lawmakers, including Rep. Jin Sung-joon, have called for stricter enforcement and international cooperation to address cross-border launderingSouth Korea Targets 2025 Rollout for Regulated Crypto ETFs and ...^[6]. South Korea’s approach mirrors global regulatory trends, such as the European Union’s Markets in Crypto-Assets (MiCA) framework, which imposes transaction caps and transparency mandates on stablecoinsSouth Korea Flags Record Suspicious Crypto Transactions in 2025^[1]. Meanwhile, the Financial Services Commission (FSC) has announced a roadmap to introduce regulated spot crypto ETFs and stablecoins by late 2025, aiming to balance innovation with investor protectionSouth Korea’s Ruling Party Unveils Crypto Reform Plan^[7].

The surge in suspicious transactions has also spurred domestic policy reforms. The FSC plans to reduce trading fees for spot ETFs to 0.015% and establish Korean won-based stablecoins to reduce reliance on offshore tokens like TetherSouth Korea’s Ruling Party Unveils Crypto Reform Plan^[7]. These measures aim to retain capital within South Korea while enhancing oversight. However, challenges persist, as stablecoins’ role in illicit flows remains a global concern. The UK and Europe have explored transaction caps, while the U.S. debates the GENIUS Act, which would impose federal rules on stablecoin issuers. South Korea’s Digital Asset Basic Act, enacted in June 2025, sets a precedent by legalizing stablecoins under strict reserve requirements and FSC oversight.

The data underscores a critical policy dilemma: while crypto and stablecoins offer efficiency in payments, they also enable new channels for money laundering. South Korea’s experience highlights the need for adaptive frameworks that address evolving risks without stifling innovation. As the country positions itself as a crypto regulatory leader, its actions could influence global standards, particularly in balancing AML/CFT measures with market growthSouth Korea Flags Record Suspicious Crypto Transactions in 2025^[1].