South Korea Seeks Tighter Travel Rule Requirements for Crypto Transfers

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South Korea's Financial Intelligence Unit (FIU) has called for the FATF to expand Travel Rule requirements to cover smaller crypto transfers, arguing that criminals are exploiting existing reporting thresholds.

The proposal was presented during recent FATF discussions on virtual asset regulation. South Korean officials said bad actors have been using a practice known as "smurfing", which is splitting large transfers into multiple smaller transactions to avoid reporting requirements and identity checks.

South Korea currently applies Travel Rule obligations to crypto transfers exceeding 1 million won (approximately $650–700). Under the rule, virtual asset service providers must collect and share information about the sender and recipient of a transaction.

The FIU is advocating for those requirements to be extended to smaller transactions and has also proposed Travel Rule obligations for both originating and receiving crypto service providers, as well as strengthened oversight of offshore and unregistered platforms. 

FIU Commissioner Lee Hyung Ju expressed his approval of the acceptance of a DeFi-related report during FATF discussions. However, he also noted that regulatory arbitrage across jurisdictions primarily comes from variations in licensing, supervision, and oversight in offshore areas.

Lee Hyung Ju said:

We will actively share Korea's policy and practical experience accumulated in the process of responding to fraud and money laundering crimes linked to organized scam compounds in Southeast Asia to help strengthen FATF-level capabilities to respond to fraud crimes.

It remains to be seen how this will affect providers, as regulators have previously announced plans to lower the domestic Travel Rule threshold and increase scrutiny of cross-border crypto transactions after identifying attempts to evade AML controls via smaller transfers.