It has been confirmed that the Korea Deposit Insurance Corporation's (KDIC) investigation into concealed cryptocurrencies was leaked to some of the targets through a cryptocurrency exchange.

Due to a breakdown in coordination between the KDIC and the exchange, setbacks have occurred in tracking concealed assets, with critics pointing out that this could have escalated into a "massive accident" if the scale had been larger.

According to the office of Representative Park Min-gyu of the Democratic Party of Korea, who sits on the National Assembly's Policy Committee, on September 14, the KDIC has been investigating 8,405 individuals related to insolvent financial institutions such as Busan Savings Bank since April of this year. Among them, 46 individuals were given prior notice by a domestic fiat-to-crypto exchange that their cryptocurrency information had been queried.

Previously, the KDIC has tracked and recovered concealed assets after amendments to the Depositor Protection Act in 2024 enabled it to request cryptocurrency-related data on individuals connected to insolvencies from Virtual Asset Service Providers (VASPs) such as exchanges.

By the end of last year, the KDIC verified that 925 out of 12,790 individuals related to insolvencies held cryptocurrencies, and among them, it uncovered 3.25 billion won in concealed assets, recovering a total of 310 million won.

The crack in coordination between the KDIC and the exchanges occurred in February of this year when cryptocurrency transaction information was included in personal credit information following an amendment to the Enforcement Decree of the Credit Information Use and Protection Act.

Consequently, when exchanges provided information on individuals linked to insolvencies to the KDIC, a problem arose where they were also required to notify the concerned parties in advance.

While financial transaction information allows for a six-month grace period on notifying the provision of information under the Real Name Financial Transactions and Guarantee Act, similar regulations were not established for cryptocurrency information, sparking controversy.

The KDIC argued that investigation targets could transfer their cryptocurrencies to other wallets or exchanges, and demanded that the exchange provide details on individuals linked to insolvencies without notifying the parties involved.

However, the exchanges pushed back, stating that they could face legal responsibility if they failed to fulfill their notification obligations under the Enforcement Decree of the Credit Information Act, and demanded a clear legal interpretation.

In this process, instead of making a formal request for legal interpretation to the Financial Services Commission (FSC), the KDIC forwarded an unofficial response obtained through the e-People portal (Gungmin Sinmungo) stating that "requests for the provision of data are permissible" to the exchanges.

The exchanges responded that this could hardly be seen as grounds for exempting them from the notification obligation under the law, and once again requested an official legal interpretation from the FSC.

While both sides stood their ground in a parallel line, Exchange A notified 46 individuals linked to insolvencies on June 1, one day before submitting the data to the KDIC, that the KDIC had queried their cryptocurrency information.

Exchange A explained that it had notified the KDIC of its prior notification policy via email, but having received no special response, it assumed the KDIC had accepted it.

On the other hand, the KDIC maintains its position that it had conveyed to the exchange that prior notification could interfere with asset investigation work.

The KDIC's follow-up response was also inadequate.

The KDIC initially reported that it had not been provided with materials related to the prior notification from Exchange A, and that it was unaware of whether prior notification had taken place.

However, as a result of checks by the lawmaker's office, it was revealed that Exchange A had belatedly informed the KDIC of the prior notification on June 9.

In addition, regulatory oversight by authorities also came under fire.

When the lawmaker's office inquired with the FSC about who bore responsibility if prior notification occurred due to such legislative gaps and led to asset concealment, the FSC passed the responsibility back to the KDIC.

Representative Park Min-gyu pointed out, "This is an investigation to find concealed assets, yet the investigation targets themselves were tipped off that their cryptocurrencies were being investigated." He added, "If the holdings had been larger, it could have been a massive accident where hundreds of millions to billions of won in concealed assets might have slipped away."

He further stated, "Even the initial report to the lawmaker's office omitted related facts, and the FSC is also evading responsibility," adding, "During the parliamentary audit, we will thoroughly question the circumstances surrounding the prior leak of the concealed asset investigation, where accountability lies, and preventive measures."
 
(Photo: Yonhap News)