Investigations into South Korean banks suggest that certain Korean businesses may be taking advantage of the Kimchi premium by facilitating $6.5 billion in shady foreign transfers (kimp).
The Financial Supervisory Service (FSS), which was informed at the end of June that there were a significant number of international remittance transactions, ordered a Korean bank probe last month, according to a story published on Monday by Asia Times.
How South Korean banks allegedly abuse Kimchi premium
The price difference between cryptocurrencies on South Korean exchanges and those on other exchanges is known as the “Kimchi premium.” Cryptocurrency is purchased by investors from international exchanges, who then resell it for a profit on Korean markets.
The examination discovered that the majority of the $6.5 billion moved overseas between January 2021 and June 2022 originated in cryptocurrency exchange accounts before being sent out of the country.
Kimp trading has alarmed regulators because it encourages money flight from the country. According to market tracker CryptoQuant, the kimp is currently trading at a low +3.37% but was above +20% as recently as April.
According to Shinhan Bank and Woori Bank, the majority of money remitted was transferred from domestic crypto exchanges to various corporate accounts of Korean firms.
Raising red flags
The KBS news outlet reported on Sunday that there are also allegations that the transferred funds are being used for money laundering and that several workers from the undisclosed organizations performing the remittances have been detained.
According to an article published on Monday by the regional news source Asia Times, these big remittances have aroused concerns that investors are utilizing sizable quantities of money to take advantage of the Kimchi premium.
As a result of accepting the most remittances, the FSS is now anticipated to impose sanctions on Shinhan and Woori. Lee Bok-Hyeon, the chief of the FSS, was quoted in Asia Times as saying, “We are taking the foreign exchange transaction seriously, and sanctions are inevitable.”
The overall amount sent overseas exceeded the FSS’s expectations when it urged banks to investigate the situation. According to Asia Times, the FSS is now likely to conduct additional on-site checks of domestic banks, which could lead to the discovery of more funds that have been remitted.