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Why does the Trump Act need to be amended?

The background of the amendment to the "Special Money Act" was firstly the cryptocurrency regulatory guidelines issued by the International Anti-Money Laundering Financial Action Task Force (FATF). FATF is an international anti-money laundering organization established to prevent money laundering and cut off the capital chain of various criminal organizations. The organization was established at the G7 summit held in Paris, France in 1989. At that time, the hot spot of the international community was to cut off the capital chain of drug trafficking organizations. In 2001, cutting off the financial chain of terrorist organizations became the focus of the organization's work. In 2012, the focus of work shifted to curbing financial activities related to weapons of mass destruction. In order to prevent related international crimes, the organization continues to expand its jurisdiction by revising regulatory guidelines.

FATF has been focusing on cryptocurrencies since 2015. Because at that time, cryptocurrency started to become a new way of money laundering. With the increasing number of crimes related to cryptocurrencies, FATF believes that relevant regulatory measures are urgently needed and took action in 2018.

In October 2018, FATF revised and formulated the "No. 15 Regulatory Policy", defined cryptocurrency as "virtual asset (Virtual asset)", and began to build an institutional mechanism to prevent cryptocurrency money laundering. In June 2019, FATF issued an explanatory note on "Regulatory Guidelines No. 15" and published regulatory guidelines for virtual assets (VA) and virtual asset service providers (Virtual Asset Service Providers, hereinafter referred to as VASPs). Matthew Billingsley, representative of the U.S. Treasury Department who served as the 30th rotating chairman of FATF at the time, talked about the need to formulate regulatory guidelines, saying that "the lack of unified regulatory guidelines will bring chaos to the international financial system."

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Are FATF regulatory guidelines mandatory?

FATF's regulatory guidelines are not truly legally binding. However, countries and financial institutions that violate regulatory guidelines will be blacklisted by FATF and will not be able to conduct financial transactions with most countries around the world. For example, in 2014, France’s largest bank, BNP Paribas, was forced to pay US$8.97 billion (approximately US$1.06 billion) to the US government in June of that year because it ignored US economic sanctions and conducted large-scale financial transactions with Iran, Sudan, Cuba and other countries. trillion won) fine. Because of this incident, the bank suffered the largest net loss in history (approximately 6 trillion won) in the current quarter, and the chairman was forced to resign. If the South Korean government and financial institutions want to conduct international financial transactions normally, they must comply with FATF's regulatory guidelines. That is, while not legally binding, failure to comply with FATF's regulatory guidelines can result in isolation from the global financial industry.

According to the FATF regulatory guidelines, the scope of VASP covers various cryptocurrency-related companies such as custodian companies that store cryptocurrencies on behalf of them, companies that operate cryptocurrency wallets, ICO project companies that issue cryptocurrencies, and companies that use cryptocurrencies assets. Anti-money laundering, submission of transaction personnel identity information (KYC) and other obligations.

The obligation to provide the identity information of the trader is also known as the "Travel Rule", which means that VASP must confirm the remitter's name, account information, remitter's address and ID card for customers with a transaction amount exceeding US$1,000 (approximately 1.2 million won) account number, payee name, payee login account and other information.

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Why did South Korea pass relevant laws only now?

In order to meet the mutual assessment of FATF, many countries formulated relevant laws very early. The Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of the Treasury, established guidelines last year that dictate what regulations apply to the cryptocurrency industry. Before and after the FATF promulgated the regulatory guidelines, countries have successively formulated reporting systems and compliance monitoring systems for cryptocurrency-related companies. Up to now, financial institutions such as FInCEN in the United States, New York State Financial Supervisory Service (NYDFS), Financial Services Agency of Japan, Canadian Securities Management Association, British Financial Supervisory Office, and Swiss Federal Financial Supervisory Office (FINMA) have implemented licensing systems or registrations for VASPs. system.

In contrast, in South Korea, the government authorities did not take any action before FATF issued regulatory guidelines. Although South Korea established the "Joint Working Group of Virtual Currency-Related Agencies" under the auspices of the Financial Commission at the end of 2016, the working group did not actually operate and failed to reach an agreement on the nature of cryptocurrencies (defined as virtual assets by FATF). Because cryptocurrency is neither currency nor financial commodity, it belongs to a brand new "existence".

The problem is that during the time when the working group was "passive and inactive", the prices of cryptocurrencies such as Bitcoin soared so wildly that the then Prime Minister of South Korea, Lee Nak-yeon, personally talked about it in November 2017, and put cryptocurrencies The problem of market overheating is called "social pathology". Since the overheating of the market gradually caused a series of social problems, the working group began to be headed by the legal department. At that time, the government’s attitude was that instead of incorporating cryptocurrency into the institutional framework, it would be better to wipe it out in the cradle. However, for a market that has already been born, and it is a market of global scale, it is impossible to make it disappear only by the restrictions of a certain country. At that time, some people in the government even proposed to close the exchange, but because of the violation of private property rights, it caused a lot of controversy.

In 2018, as the cryptocurrency market fell across the board, the market enthusiasm naturally declined. As the overheating phenomenon has subsided, the government’s attention to cryptocurrencies has also decreased. In this way, the cryptocurrency industry has been allowed to fend for itself, and there has never been any legal standard for the market that stipulates the boundaries between what can be placed and what cannot be done. Under the government's disregard and even deliberate discrimination, companies that want to operate normally in the cryptocurrency industry are struggling, while those companies that aim at legal gaps and intend to cheat are doing well.

In order not to be isolated by the global financial industry, the financial committee takes steps

After the G20 summit in December 2018 reached an agreement on FATF regulatory guidelines, the South Korean government realized the urgency of the matter, and the FATF-related financial committees began to act urgently. To keep pace with FATF regulatory guidelines, South Korea must include provisions for virtual assets in the Special Fund Act. As a result, lawmakers who agreed to enact an amendment to the Special Kim Act as soon as possible (Jo Roon-kyung, Jeon Je-soo, and Kim Byung-wook of the Democratic Party of Korea, and Kim Soo-min of the Justice Future Party) proposed amendments with roughly similar outlines.

However, the legislative process of the amendment to the Special King Act was not as smooth as expected. From the initiation of a bill to the final passage of legislation, it needs to be reviewed by the bill review subcommittee of the competent committee (the competent committee of the "Special Gold Act" is the Political Affairs Committee), then voted by the (Political Affairs Committee) plenary session, and then reviewed by the Legal and Judicial Committee , and finally passed the Congressional Assembly vote. Over the past year, the bill's importance has been overshadowed by other hot-button bills, each time excluded from committee discussion. It was not until October last year that the Subcommittee for the Review of Bills of the Political Affairs Commission began to review the bill. It was not until November 25 that the plenary meeting of the Political Affairs Commission finally passed four relevant amendments.

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What are the amendments to the Trump Act?

The amendment to the "Special Money Act" that passed the vote this time clarified the definition of virtual assets and virtual asset operators (VASP), stipulated the reporting obligations of cryptocurrency operators and operating companies, and completed the information protection management system (ISMS) certification, Use the real name to confirm the deposit and withdrawal account, verify the user's identity (KYC) and other obligations. The amendments will take effect from March 2021, one year after the bill is promulgated.

First of all, various terms used to refer to cryptocurrency such as cryptocurrency, virtual currency, and virtual currency will be unified as "virtual assets", and the transaction of virtual assets will be included in the scope of traditional "financial and other transactions". The "Special Gold Law" also defines the legal status of cryptocurrency operators. According to the "VASP" concept proposed by the FATF regulatory guidelines, all activities such as the sale, exchange, custody, and management of virtual assets are included in the "virtual asset transaction" category. scope. This means that, including cryptocurrency exchanges, businesses that operate cryptocurrency wallets and provide related financial services need to be bound by this bill.

The "declaration system" stipulated in the amendment requires relevant companies to report the name and address of the company to the Financial Information Analysis Unit (FIU) under the Financial Commission. Existing operators need to complete the reporting obligations within six months after the amendments come into effect (March 2021), that is, before September 2021. Violation of reporting obligations will be punished with imprisonment for up to five years and a fine of up to 50 million won.

JOIND Won Jaeyeon reporter won.jaeyeon@joongang.co.kr

JOIND Won Jaeyeon reporter won.jaeyeon@joongang.co.kr