Crypto Mixers Face New Regulations in South Korea as Government Targets Money Laundering Risks

South Korea’s financial authorities are preparing to introduce regulations on crypto mixers, which are used to obscure the origin and destination of virtual assets and facilitate money laundering by criminal groups.

According to DeCenter, a local media outlet covering the crypto industry, the Financial Intelligence Unit (FIU) under the Financial Services Commission (FSC) is considering imposing restrictions on transactions using mixers by virtual asset service providers (VASPs). An FIU official said, “We sympathize with the problem that there is a high risk of money laundering through mixers.”

A mixer is a service that splits and mixes virtual assets and redistributes them to multiple wallet addresses, making it difficult to identify trader information and transaction details. Mixers originally appeared to protect the privacy of users holding large amounts of cash and assets, but are now being abused by hackers and other criminal organizations for money laundering. An FIU official explained, “If virtual assets are transferred to a mixer, tracking funds and monitoring crimes is difficult.”

The move comes as South Korea follows the example of the United States, which has already taken action against mixers as money laundering services. In October last year, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued anti-money laundering (AML) regulations for mixers, requiring them to register as money transmitters and comply with reporting and recordkeeping obligations. A month later, the U.S. Treasury Department sanctioned a mixer called Sinbad, which was allegedly used by North Korea’s hacking group Lazarus to launder stolen funds. An FIU official said, “When the United States introduced mixer regulations last year, discussions began in Korea as well.”

Domestic companies are also not immune from virtual asset crimes involving mixers. Some analysts suspect that a mixer may have been used when virtual assets worth $81 million were recently hacked from Orbit Bridge, a blockchain platform developed by a local company called Ozis. Hwang Seok-jin, a professor at the Graduate School of Information Security at Dongguk University, said, “It is meaningful to convert virtual assets stolen through hacking into cash. To do so, they must go through a virtual asset exchange, so it appears that they are trying to ensure that transactions using mixers are blocked from the exchange.” He added, “Preemptive response to virtual asset-related crimes is positive in terms of securing the soundness of the market.”

However, it seems that it will take time to establish a specific system for regulating mixers. This is because discussions on introducing regulations have just begun, and international cooperation is inevitable due to the nature of mixers being used across borders. Domestic financial authorities also plan to focus on monitoring global trends for the time being. An FIU official explained, “Mix is an issue shared internationally, so cooperation from each country is necessary,” and “As this is the first system introduced by the United States, international discussions have not yet progressed in depth.”

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