South Korea's Regulator Threatens Bitcoin Startups With Jail

South Korea has beefed up its cryptocurrency regulations, with new laws on financial reporting for businesses involved in the industry set to be introduced on March 25, according to the country’s JoongAng Daily. 

The amendment to financial reporting rules mandates that all cryptocurrency businesses must now file records of their transactions with the country’s Financial Intelligence Unit—its anti-money laundering watchdog. 

Startups will have six months to comply with the new regulations—and non-compliance could result in a fine of up to $44,000, or a five-year prison sentence for principal actors.

South Korea's new crypto regulations

The new regulations are just the latest in a raft of guidelines and new laws imposed on the digital service providers by South Korea’s regulator, the Financial Services Commission (FCC).

And Korea has demonstrated that its new laws have teeth. Earlier this week, the country’s National Tax Service reported that it had identified over 2,400 individuals who it accused of using cryptocurrencies to hide their assets and evade taxes. 

The country’s new crypto tax rule will come into effect in January 2022, with a 20% tax on Bitcoin and cryptocurrency profits beginning from January 1, 2022, and capital gains tax imposed on cryptocurrency trading profit above $2,300.

At an event last fall, representatives from Korean banks said they were enthusiastic about the new regulations, which will allow them to participate in the booming decentralized finance (DeFi) industry and offer their own financial instruments. At least one bank has already launched blockchain-based applications such as payment and custodian services for its clients. 

But in order to comply with the new regulations, strict identification protocols will need to be adopted by all digital service providers. Exchanges, wallet providers, and other crypto businesses must flag any suspicious transactions on pain of hefty penalties.