The Financial Intelligence Unit (FIU) under the Financial Services Commission has imposed sanctions on Dunamu, the operator of the cryptocurrency exchange Upbit, citing deficiencies in its anti-money laundering (AML) system. The sanctions, announced on February 25, highlight issues such as inadequate customer verification procedures, failure to prevent transactions with unregistered virtual asset exchanges, and insufficient monitoring of suspicious activities.
Authorities identified multiple violations of customer due diligence requirements under the Act on Reporting and Using Specified Financial Transaction Information. According to the FIU, failing to properly verify customer identities during transactions has raised concerns about potential money laundering risks.
During the investigation, regulators found 34,477 instances where transactions were processed without proper identification verification. These included cases where ID photos were unclear due to image quality issues or where identification was uploaded as a copy or a photo file rather than an original document. As part of the inspection, the FIU commissioned a service provider to test the verification system by submitting hand-drawn ID images, which were still approved.
Additionally, 5,785 cases were identified where customer verification was completed despite incorrect address input. Authorities also flagged nearly 50,000 virtual asset transfers involving 19 unregistered overseas virtual asset operators. The FIU noted that it had advised Dunamu to refrain from transactions with these operators since August 2022, but compliance was not observed.
Further concerns were raised regarding Upbit’s handling of transactions potentially linked to criminal activity. Investigators found that Dunamu did not report the transaction details of 15 customers who were subjects of law enforcement warrants. The exchange also failed to conduct proper risk assessments before allowing new transactions, such as those involving non-fungible tokens (NFTs). Authorities identified 2,552 cases where risk assessments for money laundering were not conducted prior to transactions and 226,558 cases where transactions proceeded despite risk assessment results indicating potential concerns.
Despite the sanctions, industry analysts suggest that the impact may be limited. One of the key disciplinary measures included a reprimand warning for Dunamu CEO Lee Seok-woo under the Act on Corporate Governance of Financial Companies. While a reprimand warning typically restricts individuals from holding executive positions in financial firms for three years, its effect on Dunamu is expected to be minimal, as the company operates as a virtual asset exchange rather than a financial institution. CEO Lee’s term is set to continue until December next year.
Market analysts also anticipate limited disruptions to Upbit’s operations. Existing users and new registrants can continue virtual asset transactions, though new registrants may face temporary restrictions on transferring assets to other exchanges. A virtual asset industry representative commented that Upbit may experience a “lock-in effect,” retaining new users within its platform due to these restrictions.
Authorities have yet to determine the final amount of financial penalties, indicating an intention to monitor Dunamu’s compliance improvements. This case has also drawn attention from other virtual asset exchanges, particularly those undergoing business license renewal. The sanctions resulted from an on-site inspection following Upbit’s renewal application in August 2024. Among the four remaining South Korean won-based exchanges, Korbit and GOPAX have completed their inspections, while Bithumb and Coinone are awaiting review.
In response to the sanctions, Dunamu issued a statement acknowledging the regulatory review and expressing its intent to cooperate with authorities. The company noted that it would provide further explanations as required and suggested that some aspects of the findings may warrant further consideration. This has led to speculation that Dunamu may explore legal options, including an injunction or administrative appeal.
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