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“Privacy coins” that add an extra layer of anonymity to crypto transactions are no longer welcome in South Korea. Coin brands like Monero, ZCash, and Dash will not be available in the country’s exchanges anytime soon, with the government making cites anti-money laundering (crypto AML) measures as the reason for the ban.
The controversy surrounding privacy coins
The so-called privacy coins were designed to support the last remaining transparent public windows in cryptocurrency transactions. Most traditional cryptocurrencies, such as Bitcoin, are not completely anonymous: at the very least they make public the wallet addresses involved in the transaction and the amount. Law enforcement can track these transactions in crypto exchanges, where wallet holders can potentially be identified via the email address used to register the exchange account or by using thumbprint to open it. Privacy Coins add a third-party process that hides these transaction records, making the parties involved totally anonymous and making it extremely difficult for law enforcement to track them down.
While privacy coins aren’t used exclusively for criminal purposes, criminals are certainly enthusiastic consumers of them. The South Korean Regulator Financial Services Commission (FSC) cites the frequent use of privacy coins (which it defines as “dark coins”) for ransomware attacks and money laundering as a central reason for the ban, arguing that these transactions are too difficult to track.
Privacy coins with additional protections such as Dash, Monero and Zcash will no longer be offered by the country’s cryptocurrency exchanges starting from the beginning of March 2021. The new law is an addition to the current Special Payments Act, an act complete with cryptocurrency regulation which was approved in early March this year. In addition to AML encryption, the new terms require exchanges to implement a series of “know your customer” (KYC) measures that ensure that account holders are identified by some sort of government-issued document. Once the terms are in effect, exchanges will have six months to report changes made to achieve compliance.
Although the AML terms of cryptocurrencies will not be in effect for more than three months, some South Korean exchanges voluntarily abandoned certain types of coins for privacy until a year ago. The biggest example of this was cryptocurrency giant OKEX, which released five types of privacy coins (including Monero and Zcash) in September 2019 out of concern that their exchange might violate the ‘travel rule’ of the Financial Action Task Force (FATF). The travel rule was written to apply to more standard transfers between international banks and specifies the personal information that must be collected in these circumstances; some of the cryptocurrency exchanges feared the regulation would apply to them too. None of the largest exchanges in the country currently offer privacy coins, but a number of smaller cryptocurrency exchanges still deal with them.
The FSC has been unambiguous in its new approach to ransomware investigations and encrypted anti-money laundering rules, saying it wants to eliminate “all forms” of anonymity in the use of coins within the country. Although there has been some sort of cryptocurrency craze in South Korea since 2017, with the Seoul city government even proposing to develop its own type of currency, public sentiment has started to change to some degree in 2019. because of the “Nth Room” “Case. The Nth Room was an underground club that created violent sexual content and child pornography, accepting payments in privacy coins to allow access via Telegram. A petition to the government to publicly reveal identities of Nth Room users collected five million signatures.
Read Crypto AML around the world
The past year or two has brought a flurry of cryptocurrency regulation across the globe, with most countries following the same pattern citing AML crypto measures and cybercrime funding potential as central reasons.
A number of other countries, such as Australia and Canada, have chosen to regulate cryptocurrency under existing money laundering and terrorist financing laws or have expanded AML crypto terms to cover exchanges. In terms of bans, there are many that have simply banned the use of all types of cryptocurrency: Algeria, Bolivia, Morocco, Nepal, Pakistan and Vietnam. India had banned it, but lifted the ban in early 2020. Some, notably China and Thailand, simply prevented financial institutions from facilitating cryptocurrency transactions rather than passing punitive measures that could target individuals.
The South Korean FSC cites the frequent use of #privacy coins for #ransomware and #moneylaundering attacks, arguing that these transactions are too difficult to track. #respectdata
The specific privacy coin ban is a much rarer measure; South Korea is only the second nation (after Japan) to place government restrictions on Monero and similar currencies. However, major exchanges in Australia and the US have already voluntarily chosen to ditch Monero and similar cryptocurrencies.
