S. Korea Regulators Sound Alarm on Surge in Hwanchigi Schemes

• The bulk of flagged transactions is tied to a practice known as “hwanchigi”, where illicit money is converted into crypto offshore, transferred back into Korea through exchanges, and then withdrawn in Korean won
• From 2021 to August 2025, customs data shows about ₩9.56 trillion (approximately $7.1 billion) worth of crypto-linked criminality referred to prosecutors, with roughly 90% of that tied to hwanchigi-type schemes
• Lawmakers in South Korea are pushing for stronger enforcement, more coordination between agencies (FIU and KCS), and improvements in tracking criminal funds and illegal foreign remittances

Between January and August 2025, 36,684 suspicious transaction reports (STRs) were submitted by virtual asset service providers (VASPs), say South Korea’s Financial Intelligence Unit (FIU) and Korea Customs Service (KCS).

The year is not over, yet this number already exceeds the combined total from all of 2023 (16,076) and 2024 (19,658).

The bulk of flagged transactions is tied to a practice known as “hwanchigi”, where illicit money is converted into crypto offshore, transferred back into Korea through exchanges, and then withdrawn in Korean won.

From 2021 to August 2025, customs data shows about ₩9.56 trillion (approximately $7.1 billion) worth of crypto-linked criminality referred to prosecutors, with roughly 90% of that tied to hwanchigi-type schemes.

Related: Seoul Lifts 7-Year Ban, Allowing Crypto Firms Access to Capital and Tax Breaks

Stablecoins at the Center of Cross-Border Abuse

One of the highlighted cases is when an underground broker allegedly used Tether (USDT) to move about ₩57.1 billion (about $42 million) between South Korea and Russia via thousands of transactions. 

There’s growing concern about the misuse of stablecoins (especially USDT), since they make cross-border transfers easier to move large sums covertly. As such, the country is planning to introduce stricter rules for digital asset services (including better reporting requirements and oversight) to combat these rising illegal flows.

Lawmakers Push for Stronger Oversight

Lawmakers in South Korea, like Representative Jin Sung-joon, are pushing for stronger enforcement, more coordination between agencies (FIU and KCS), and improvements in tracking criminal funds and illegal foreign remittances.

He said: “Related organizations such as the Korea Customs Service and the FIU should establish systematic measures against new types of foreign exchange crimes, along with effective crackdowns such as tracking criminal funds and blocking disguised remittances.”

Crime Rising, or Detection Getting Sharper?

The growth in STRs suggests both that unlawful crypto activity may be increasing and that regulatory and monitoring capacity is ramping up. More flagged transactions could also mean better detection rather than just more crime.

Hwanchigi has been a long-standing problem in South Korea because direct foreign currency remittance is tightly regulated, so criminals use crypto and stablecoins as a workaround. These schemes exploit regulatory gaps such as offshore platforms, exchange controls, and stablecoin transfers.

South Korea’s plan to introduce stricter rules aligns with a global trend where governments are tightening regulations on stablecoins and cross-border crypto payments to prevent their use in bypassing traditional financial systems.

Related: South Korea Rolls Out the Red Carpet for Crypto Startups; And the Tax Man