While virtual assets1) have attracted many investors with their convenience and innovation, they pose various regulatory challenges and legal problems. In the current situation where the demand for anti-money laundering is growing, the episodes related to virtual assets serve as an important lesson.

According to the Financial Times, Changpeng Zhao, the former CEO of Binance, the largest cryptocurrency exchange in the world, was found guilty of failing to establish an appropriate internal control system to prevent money laundering and was sentenced to four months in jail on April 30, 2024. Changpeng Zhao had agreed with US authorities to resign as the CEO of Binance over related matters in November 2023. Furthermore, Binance has also paid $4.3 billion to settle violations, including its failure to stop trading that funded terrorist organizations Hamas and al Qaeda and funding sanctioned organizations in Iran and Russia.

Money laundering using virtual assets can take various forms, such as trading in Darknet markets, ransomware attacks, and hacking stock exchanges. Some virtual asset exchanges, in particular, are in danger of being hacked, resulting in the loss or theft of virtual assets worth millions of dollars. Hackers can use this to launder money or transfer the assets into other virtual assets. There have also been many hacking incidents in Korea. Bithumb was hacked three times throughout 2017 and 2019 and suffered a loss of 56 billion won, and UPbit lost about 58.6 billion won in virtual assets in 2019. These cases showcase the vulnerability of virtual assets and serve as a reminder of the importance of having thorough security measures for both cryptocurrency exchanges and investors, as well as a strong AML system.

The Financial Action Task Force (FATF) sets strict guidelines against money laundering using virtual assets that require global virtual asset service providers to verify the identity of their customers and report suspicious transactions. In response, individual countries are also strengthening regulations against money laundering using virtual assets. Such measures are crucial to detect and prevent illegal financial activities and reinforce the safety of the global financial system through international cooperation and information sharing.

Such discussions represent a universal perspective on the virtual asset market and money laundering. Now, I would like to take a different view on these topics. While money laundering through virtual assets can be seen as a difficult problem to solve, it can also become another opportunity if approached from a different and bold perspective.

The first opportunity is to have an AML system for virtual assets. Concerns over money laundering related to virtual assets have become and will continue to be an obstacle to the virtual asset industry. Addressing concerns over money laundering using virtual assets has gained that much significance as a challenge. Therefore, establishing technological infrastructure to prevent money laundering in virtual assets can create new industries and jobs related to virtual assets, such as the security industry. South Korea already plays a significant role in digital innovation in virtual assets, domestically and internationally. Using our technological strengths, we can secure a leading position and take the global lead in the fight against financial crimes, such as money laundering, using virtual assets.

Another opportunity for Korea is to demonstrate global leadership in AML for virtual assets, which has enormous potential. Global leadership is important because leaders are presented with more opportunities, which also applies to the field of AML. So far, South Korea has mainly played the role of a fast follower in finance by faithfully following the global framework and rules that have already been set. However, we can take a different approach in AML for virtual assets. Our virtual asset-related technology and market are already at par with those of other advanced countries. Moreover, we have emerged as a global trendsetter regarding the regulatory framework for AML in virtual assets. For example, deposit and withdrawal accounts require real name verification2) to prevent money laundering in virtual assets, and travel rules3) and whitelist4) policies have also been introduced preemptively.

As a result, many countries are asking after and learning from Korea's AML efforts and their effectiveness. Under such circumstances, I would like to point out the importance of Korea being more actively engaged in the mediation process for international regulations and policies to become a leader in AML for virtual assets.

I was invited to the Japan Fintech Week as a discussant in March 2024. The moderator asked me if K-fintech and K-finance could be as globally successful as K-pop. My answer was "Yes." My reason for that question was simple. Just as the success of K-pop has been driven by the passion and adventurous spirit of Koreans, I replied that I believe that the spirit embodied in K-pop continues in K-finance. I am particularly expecting AML for virtual assets to be the first field of success for Korea. I would like to add my support to our younger generations, who are creative, dynamic, and equipped with a global mindset and digital skills, with the firm belief that they would play an important role in this field.

1) In 2018, the Financial Action Task Force (FATF) recommended that terms related to cryptocurrency be standardized as "virtual assets." This was to emphasize that virtual currencies or cryptocurrencies were not currencies but assets.
2) Deposit and withdrawal accounts with real name verification are a system that obligates virtual asset service providers to allow customers to deposit or withdraw virtual assets only when they have signed a service provision contract with a financial institution and have an account at that institution.
3) The Travel Rule is a system for tracking money transfers for AML, which obligates virtual asset service providers to record and store the identification information of senders and recipients who transfer virtual assets worth one million won or more.
4) Whitelist is a method in which customers register their own wallet with proof that the wallet address of their international account belongs to them, such as their email address, so that virtual asset service providers can collect the recipients' account information.