Regulatory Twists in South Korea, China, and Nigeria

South Korea and China plan to tighten the reigns of crypto regulation while Nigeria is taking a chance with a more open minded approach.

South Korea's Financial Services Commission (FSC) has proposed a ban on credit card purchases of cryptocurrencies to address concerns about illegal financial outflows and money laundering. This proposal is open for public input until Feb. 13. Additionally, South Korea has been cracking down on tax evasion, with Incheon city seizing $375,000 in crypto assets from residents.

In China, the government is targeting the use of cryptocurrencies in bribery, with legal experts highlighting the challenges in tracking these digital assets. Meanwhile, Nigeria is revising its stance on cryptocurrencies, allowing crypto exchanges and digital asset brokers to operate naira-denominated bank accounts, albeit with certain restrictions, and is also working towards launching its first regulated stablecoin, cNGN.

South Korea Moves to Ban Credit Card Purchases of Cryptocurrency

In South Korea, the country's top financial regulator, the Financial Services Commission (FSC), proposed a change to the nation's credit finance laws. This change, announced in a legislative notice on Jan. 3, aims to ban South Korean citizens from purchasing cryptocurrencies using credit cards.

The FSC's decision seems to be primarily driven by concerns about illegal financial outflows and the risks of money laundering associated with the purchase of cryptocurrencies from foreign exchanges. South Korea has been extremely vigilant in monitoring the flow of funds in and out of the country, especially in the context of digital assets. The FSC stated, "Concerns have been raised about illegal outflow of domestic funds overseas due to card payments on overseas virtual asset exchanges, money laundering, speculation, and encouragement of speculative activities.”

The proposed amendment to the credit finance laws is a response to all of these concerns. By stipulating virtual assets as prohibited for payment through credit cards, the FSC now aims to have more control over the cryptocurrency market.

Under the current legal framework in South Korea, local cryptocurrency exchanges are allowed to facilitate transactions between virtual assets through deposit and withdrawal accounts, provided the user’s identity can be verified. This measure ensures a degree of transparency and security in transactions. However, these regulations do not extend to foreign crypto exchanges, which creates a loophole that the FSC is now very keen to close.

However, the FSC's proposal is not yet final. In an effort to hear from the public and gather feedback, the regulator has opened the proposal for public input until Feb. 13. After this, the proposal will undergo a review and resolution process, with the goal of implementing the new regulations in the first half of the year.

$375,000 Seized From South Korean “Tax Dodgers”

The seriousness of South Korea’s crypto crackdown is also evident in the fact that Incheon city made headlines by confiscating a massive amount of cryptocurrency from residents accused of concealing their earnings in token wallets. The city's tax service successfully collected about $375,000 in crypto assets from 298 people. This collection mostly included popular cryptocurrencies like Bitcoin (BTC).

This action is not an isolated incident at all, but part of a broader, region-by-region crackdown targeting people who evade taxes by holding cryptocurrencies. Both central and local tax agencies are involved in this effort, which proves how seriously South Korean authorities are approaching this issue.

The National Tax Service (NTS) of South Korea, along with the customs service, has been enhancing its monitoring capabilities over the past few years. Additionally, Incheon's tax service has not limited its scope to digital assets alone. The city has also seized a variety of other assets like bonds, bank safety deposit boxes, and hidden financial assets at secondary financial institutions.

The efforts of Incheon's tax service have been very successful, with the city raising over $43.6 million from tax evaders in 2023. Since 2021, Incheon has been particularly proactive, forming two dedicated teams focused on investigating tax evasion. Moreover, the city has incorporated a suite of seven new high-tech tools, including some specifically designed for crypto-related investigations.

The choice given to citizens – to either pay their tax bills and associated fines or face the liquidation and sale of their coins – is a stark reminder of the legal and financial consequences of tax evasion. Incheon's actions are a very clear message to residents and the community that the concealment of assets, whether digital or traditional, will not be tolerated.

China Targets Cryptocurrency in New Anti-Bribery Measures

China has intensified its efforts to fight corruption, specifically focusing on the use of cryptocurrencies and electronic payments for bribery. This move was pointed out in the Jan. 1 issue of Legal Daily, a publication overseen by the Chinese Communist Party's Central Commission for Political and Legal Affairs. The issue brought to light discussions from the annual China Integrity and Legal Research Association meeting, where the adaptation of legal frameworks to address emerging forms of corruption was a central theme.

Legal scholars, including Zhao Xuejun, an associate professor at Hebei University Law School, raised concerns about the increasing use of virtual currencies and electronic gift cards in corrupt practices. Zhao pointed out that these digital assets, often stored in "cold storage" devices, have become "hidden channels" for bribery. These devices can easily be transported across borders, complicating the tracking and regulation of illegal activities.

Mo Hongxian, a professor at Wuhan University Law School, specifically mentioned Bitcoin (BTC), highlighting the challenges caused by the anonymity and difficult traceability of virtual currencies. Despite not being officially recognized in China, Mo emphasized the need for more attention to transactions involving these cryptos, considering their potential use in illegal and criminal activities.

The article in Legal Daily concluded with a call for a more robust legal and regulatory system to address these new forms of corruption. It also stressed the importance of expanding the scope of bribery crimes and enhancing supervision in areas particularly susceptible to these emerging corruption trends.

Nigeria Revises Crypto Regulations

Nigeria is another country that decided to make some changes to its crypto rules and regulations, but this time it seems to be for the better. The Central Bank of Nigeria (CBN) introduced stringent regulations for banks in dealing with virtual asset service providers, moving away from an outright ban on cryptocurrencies.

Under the new guidelines set by the CBN, entities like crypto exchanges and digital asset brokers are allowed to operate naira-denominated bank accounts. However, the regulations come with some restrictions. Notably, these companies are prohibited from making cash withdrawals and cannot use their crypto accounts to clear third-party checks. Additionally, other types of withdrawals from these accounts are limited to two per quarter.

In another development, local financial institutions and blockchain companies are actively working on launching Nigeria's first regulated stablecoin, named cNGN. However, despite these new and exciting advancements, the CBN remains firm on certain aspects of cryptocurrency. Banks are still prohibited from holding or trading in cryptocurrencies, with the central bank pointing towards concerns of fraud and financial risks as the main reasons for this decision.