South Korea looks to crackdown on crypto mixers via new regulations

South Korean financial authorities are considering introducing specific regulatory measures for cryptocurrency mixers to curb the misuse of these protocols for money laundering by criminal organizations, local media reported on Jan. 15.

The move is driven by the growing concern that mixers, originally designed for privacy protection, are increasingly exploited for illicit financial activities.

The Financial Intelligence Unit (FIU) of South Korea’s Financial Services Commission is spearheading the examination of potential regulatory frameworks.

Mixers under fire

Cryptocurrency mixers, or tumblers, fragment and intermix digital assets, redistributing them across numerous wallet addresses, thus obfuscating the trail of transactions and user identities.

While these services were initially intended to safeguard the privacy of users with substantial funds, they have become a tool for criminals, including hackers, to launder money.

According to an FIU official, the absence of specific sanctions against mixers in South Korea has led to a significant risk of them being used for laundering funds. The proposed regulations might restrict virtual asset service providers from engaging in mixer-based transactions.

Professor Hwang Seok-jin from Dongguk University’s Graduate School of Information Security emphasized the importance of new regulations to prevent the cash-out of stolen assets through exchanges and to maintain market integrity.

Domestically, the urgency of these measures is driven by the recent hacking of the Orbit Bridge. Hackers exploited the protocol to steal roughly $81 million in various digital assets, which is suspected to have been laundered through mixers.

International collaboration

This move aligns with international trends and regulatory actions from other authorities, such as the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which recently established Anti-Money Laundering (AML) regulations targeting mixers.

Following this, the regulator sanctioned crypto mixer Sinbad, frequently used by the North Korean hacking group ‘Lazarus‘ for laundering stolen funds.

There is a growing global consensus on the issue of mixers needing regulatory intervention, primarily to stop their misuse by illicit actors. However, the formulation of concrete regulatory frameworks might take time due to the novelty of the discussion and the need for international coordination, given the cross-border nature of mixer usage.

The FIU said it intends to monitor the situation in other countries and aims to collaborate heavily with international regulators to clamp down on the misuse of mixers.