South Korean banks are being investigated for their part in facilitating $6.5 billion in suspicious overseas remittances which have been tied to companies arbitraging cryptocurrency.
The Financial Supervisory Service ordered an investigation into South Korean banks last month after identifying a significant amount of overseas remittance transactions at the end of June.
The investigation found that a majority of the $6.5 billion remitted overseas between Jan. 2021 and June 2022 came from crypto exchange accounts before being sent out of the country suggesting some Korean companies are exploiting the Kimchi premium.
The Kimchi premium is the gap in cryptocurrency prices in South Korean exchanges compared to foreign exchanges. Investors buy crypto from foreign exchanges and sell them on local Korean exchanges for a profit.
Regulators have been troubled about Kimchi premium trading as it encourages capital flight from the country. Currently, the kimchi premium sits at a modest +3.37% but was above +20% as early as last April.
Reports from Shinhan Bank and Woori Bank found that most of the money remitted was first transferred out of domestic crypto exchanges to various corporate accounts of Korean companies. These large remittances have raised red flags that investors are using huge sums of money to exploit the Kimchi premium.
The FSS is now expected to issue sanctions toward Shinhan and Woori for allowing the greatest amount of remittances.
