South Korean Court Acquits 14 Crypto Traders of Kimchi Premium Charges

The Seoul Central District Court has cleared 14 out of 16 crypto traders who were accused of illegally exploiting the kimchi premium, a price gap between South Korean and overseas crypto exchanges. The court ruled that the prosecution failed to prove that the traders violated any laws or regulations.

What is the Kimchi Premium and How Did the Traders Profit from It?

The kimchi premium is a phenomenon that occurs when the demand for crypto assets in South Korea exceeds the supply, resulting in higher prices on local exchanges than on foreign platforms. For example, during the 2017 bull run, the kimchi premium peaked at around 55%, meaning that one bitcoin was worth 55% more in South Korea than in other countries. Similarly, in the 2020-2021 bull run, the kimchi premium reached near 20% at some points.

Some crypto traders have tried to take advantage of this price difference by buying crypto from overseas vendors and selling them on domestic exchanges, or vice versa. This is known as arbitrage trading, and it can generate significant profits if done correctly. However, it also involves various risks and challenges, such as exchange rate fluctuations, transaction fees, regulatory hurdles, and market volatility.

What Were the Charges and How Did the Court Rule?

The prosecution alleged that 16 crypto traders, including a suspected mastermind, engaged in illegal arbitrage trading between April 2021 and August 2022, and remitted about $3.2 billion worth of assets, including crypto, fiat, and goods, without proper registration or verification. The prosecution claimed that the traders used shell companies, false trade payments, and bank employees to conceal their activities and evade taxes.

The court, however, found the prosecution’s case to be weak and based on Supreme Court precedents that did not address the core issues of the case. The court stated that the actions of the defendants could not be considered as “payments between South Korea and foreign countries”, as the prosecution argued, because there was no clear legal definition or requirement for such payments. The court also noted that the traders did not violate any specific laws or regulations regarding crypto trading, taxation, or foreign exchange.

Therefore, the court acquitted 14 of the 16 defendants, including the alleged mastermind, of the major charges. The court only convicted two of the defendants of minor offenses, such as falsifying documents and violating the Foreign Exchange Transactions Act, and sentenced them to 12 months and six months in prison, respectively.

What Are the Implications and Reactions of the Verdict?

The verdict is a setback for the prosecution, which has been trying to crack down on crypto market manipulation and tax evasion in South Korea. The prosecution expressed its dissatisfaction with the court’s ruling and said it would appeal to the High Court, hoping to secure a more favorable verdict.

The verdict is also a relief for the crypto traders, who faced up to 10 years in prison if found guilty of the major charges. The traders maintained their innocence and argued that they were simply engaging in legitimate business activities that did not harm anyone.

The verdict is also a reflection of the legal ambiguity and complexity surrounding crypto trading in South Korea, where the government has been struggling to establish clear and consistent rules and regulations for the emerging industry. The verdict shows that the current legal framework is inadequate and outdated to deal with the new and dynamic challenges posed by crypto.