Not every domestic or cross-border transaction involving virtual assets such as USDT constitutes a violation of Korea’s Foreign Exchange Transactions Act.
However, where a person repeatedly and continuously receives funds from others and performs functions equivalent to making or receiving payments between Korea and a foreign country on their behalf, the activity may constitute unregistered foreign exchange business under the Foreign Exchange Transactions Act. The Supreme Court has also held that the circumstances and purpose of the transactions, their scale and frequency, duration, and commercial nature should be considered comprehensively.
Even where the activity does not constitute unregistered foreign exchange business, separate reporting obligations may arise depending on the actual settlement method, including third-party payments or receipts and set-off arrangements.
From December 3, 2026, a new registration regime governing cross-border virtual asset transfer services by virtual asset service providers will also take effect.
Table of Contents
1．What Is Virtual Asset-Based Hawala?
2．Distinguishing Personal Virtual Asset Trading from Hawala
3．Standards and Penalties for Unregistered Foreign Exchange Business
4．Reporting Obligations for Payments and Receipts under the Foreign Exchange Transactions Act
5．Virtual Asset Service Provider Reporting under the Act on Reporting and Using Specified Financial Transaction Information
6．The 2026 Virtual Asset Transfer Business Registration Regime
7．Key Compliance Issues for Virtual Asset Businesses
8．Frequently Asked Questions
9．Summary and Key Considerations
1．What Is Virtual Asset-Based Hawala?
The term “hawala” is generally used in Korea to describe transactions that do not use ordinary remittance channels through authorized foreign exchange institutions, but instead create the practical effect of transferring funds across borders by arranging corresponding payments and receipts in Korea and abroad.
Where virtual assets are used, typical structures may include:
- Receiving Korean won in Korea and transferring the corresponding amount of USDT to an overseas wallet
- Receiving USDT overseas and paying Korean won to a designated person in Korea
- Acquiring virtual assets overseas, selling them in Korea, and paying the proceeds to a specified person
For purposes of the Foreign Exchange Transactions Act, the key issue is not merely whether virtual assets were used. Rather, the focus is on whether the domestic payment of funds and the overseas transfer of virtual assets are connected in a way that effectively performs a payment or receipt function between Korea and a foreign country.
Accordingly, even if a transaction is described as a “virtual asset trade” or an “OTC transaction,” the legal analysis should focus on its substance. If the actual structure performs overseas payment or settlement functions for third parties, the applicability of the Foreign Exchange Transactions Act must be assessed based on the real flow of funds and assets.
The Supreme Court has likewise identified as a key factor whether the activity continuously and repeatedly performs functions substantially equivalent to the cross-border payment and receipt services ordinarily performed by foreign exchange banks.
2．Can Personal Virtual Asset Trading Constitute Hawala?
The mere fact that a person purchases virtual assets on an overseas exchange or repeatedly transfers virtual assets to an overseas wallet does not, by itself, establish unregistered foreign exchange business.
When determining whether foreign exchange business has been conducted “as a business” without registration, the Supreme Court has held that the following factors should be considered comprehensively:
- The circumstances and purpose of the transactions
- The scale, frequency, and duration of the transactions
- The actual owner of the funds
- Whether the transactions were conducted for third parties
- Whether fees, spreads, or other profits were earned
- Whether the arrangement performed a domestic-to-overseas payment or receipt function
A person trading virtual assets with their own funds for their own investment profit is not legally equivalent to a person who receives funds from others and performs overseas remittance or settlement functions on their behalf.
Accordingly, the amount of trading volume alone is not decisive. The ownership of the funds, transaction purpose, relationship with counterparties, and profit structure are all important factors.
[Relevant Case] Supreme Court Decision 2024Do12420, Sept. 11, 2025
3．How Is Unregistered Foreign Exchange Business Determined and Penalized?
The Foreign Exchange Transactions Act includes payments, collection, and receipts between Korea and foreign countries within the scope of foreign exchange business.
In virtual asset transactions, the following facts may be particularly relevant:
- Funds are received from customers or third parties
- Domestic Korean won payments correspond to overseas virtual asset transfers
- The operator earns fees or spreads
- The same transaction structure is repeated for multiple counterparties
The Supreme Court has held that, when determining whether unregistered foreign exchange business has occurred, it is necessary to examine whether the operator continuously and repeatedly performs functions substantially equivalent to the cross-border payment and receipt services performed by foreign exchange banks.
Conducting foreign exchange business as a business without registration may result in criminal liability under the Foreign Exchange Transactions Act. However, liability must be determined based on the specific transaction purpose and scale, together with repetition, commerciality, and the actual role and knowledge of each participant.
[Relevant Provisions] Foreign Exchange Transactions Act, Articles 8 and 27-2
4．Can Separate Reporting Obligations Apply Even If the Activity Is Not Unregistered Foreign Exchange Business?
Yes. Whether a person is conducting foreign exchange business “as a business” and whether a particular payment or receipt method triggers a reporting obligation are separate issues.
Article 16 of the current Foreign Exchange Transactions Act requires prior reporting in certain cases where claims or obligations arising from transactions are settled using specified payment or receipt methods.
Representative examples include:
- Settling claims and obligations by set-off
- Making or receiving payment with a third party rather than the contractual counterparty
- Making or receiving payment without using an authorized foreign exchange institution
However, statutes and subordinate regulations separately provide exceptions. Therefore, the mere use of one of these structures does not automatically mean that reporting is required.
Where virtual assets are used to settle payments with an overseas entity, it is necessary to review the underlying transaction, the creditor-debtor relationship, the payer and recipient, and the actual settlement route.
[Relevant Provision] Foreign Exchange Transactions Act, Article 16
5．Should Virtual Asset Service Provider Reporting under Korea’s AML Law Also Be Reviewed?
Yes. If a business conducts the purchase, sale, exchange, or transfer of virtual assets for others on a commercial basis, it should also review whether it constitutes a virtual asset service provider, or VASP, under Korea’s Act on Reporting and Using Specified Financial Transaction Information.
The Supreme Court distinguishes between:
- Ordinary users trading virtual assets on exchanges for their own account and profit; and
- Persons who continuously and repeatedly perform virtual asset-related services for unspecified customers or users
Accordingly, where a business repeatedly uses USDT or other virtual assets to perform overseas payment or settlement functions for customers, two separate regulatory issues may arise:
- Unregistered foreign exchange business under the Foreign Exchange Transactions Act
- Unreported virtual asset service provider activity under the Act on Reporting and Using Specified Financial Transaction Information
The two statutes regulate different conduct and apply different legal tests, so they should be analyzed separately.
6．How Will Cross-Border Virtual Asset Transfer Regulation Change from December 2026?
From December 3, 2026, a separate registration regime for virtual asset transfer business will take effect under the Foreign Exchange Transactions Act.
The amended Act, promulgated on June 2, 2026, introduces statutory definitions for virtual assets, virtual asset service providers, and virtual asset transfer business.
Under the amended law, virtual asset transfer business includes services in which a virtual asset service provider transfers virtual assets between Korea and a foreign country through the sale, purchase, exchange, or similar transactions of virtual assets, as well as certain activities producing substantially the same effect. The detailed scope will be prescribed by Presidential Decree.
New Article 8-2 will also require a virtual asset service provider intending to conduct virtual asset transfer business to satisfy prescribed requirements and register in advance.
Accordingly, VASP reporting under the Act on Reporting and Using Specified Financial Transaction Information and registration for virtual asset transfer business under the Foreign Exchange Transactions Act are separate regulatory procedures.
As of August 2026, the amended provisions have not yet taken effect, so current transactions remain governed by the existing law. However, businesses planning to provide cross-border virtual asset transfer services after December 3, 2026 should separately assess whether registration under the amended Act will be required.
The amended law identifies the soundness of cross-border transactions and the establishment of a monitoring framework for virtual asset transfers as key policy objectives.
7．What Should Virtual Asset Businesses Review?
Businesses operating or preparing overseas remittance, payment, or settlement services using virtual assets should assess regulatory applicability based on the actual transaction structure and flow of funds, rather than the name of the service.
Key review points include:
- The actual beneficial owner of the funds used in the transaction
- The relationship between domestic payments and overseas virtual asset transfers
- Whether the business performs remittance or settlement functions for third parties
- The structure of fees or purchase/sale spreads
- Whether registration as a foreign exchange business is required
- Whether reporting is required for third-party payments, set-off, or other payment methods
- Whether VASP reporting is required under the Act on Reporting and Using Specified Financial Transaction Information
- Whether registration for virtual asset transfer business will be required from December 2026
In particular, the legal characterization of virtual asset OTC or P2P transactions, services connected to overseas exchanges, and stablecoin-based payment or settlement businesses is not determined solely by the wording used in contracts or terms of service.
The parties to the transaction, source and destination of funds, transfer route of virtual assets, and the actual function performed by the business should be reviewed as a whole.
8．Frequently Asked Questions (FAQ)
Q1. Does simply sending USDT to an overseas exchange constitute hawala?
No. The mere transfer of virtual assets to an overseas exchange or personal wallet does not automatically constitute unregistered foreign exchange business.
However, if a person receives funds from another party, transfers USDT to a designated overseas wallet, and the domestic and overseas payments correspond to each other, it is necessary to assess whether the overall structure performs a cross-border payment or receipt function.
Q2. Can a private USDT transaction violate the Foreign Exchange Transactions Act?
Yes, depending on the structure.
The fact that the transaction is between individuals does not by itself determine whether the Act applies.
If a person repeatedly performs domestic or overseas payment or settlement functions for others and receives fees or other consideration, the transaction should be reviewed for possible unregistered foreign exchange business based on its purpose, repetition, and commercial nature.
Q3. If the activity is not unregistered foreign exchange business, does that mean there is no issue under the Foreign Exchange Transactions Act?
No.
Even if the activity does not constitute unregistered foreign exchange business, reporting obligations may arise under Article 16 of the Foreign Exchange Transactions Act depending on the payment method, including third-party payments or receipts, set-off, or payments made without using an authorized foreign exchange institution.
Relevant statutory exceptions must also be reviewed.
Q4. Will existing virtual asset service providers need separate registration after December 2026?
Potentially, yes.
If an existing VASP conducts cross-border virtual asset transfer business, it must separately determine whether registration will be required.
The amended Foreign Exchange Transactions Act taking effect on December 3, 2026 establishes a separate registration regime for virtual asset transfer business in addition to VASP reporting under the Act on Reporting and Using Specified Financial Transaction Information.
9．Summary and Key Considerations
The mere use of virtual assets in an overseas transaction does not automatically constitute a violation of the Foreign Exchange Transactions Act.
However, where the overall transaction structure continuously and repeatedly performs functions substantially equivalent to cross-border payments or receipts for third parties, it may constitute unregistered foreign exchange business.
Even if the activity does not fall within that category, businesses should separately review reporting obligations arising from the actual payment and receipt method, as well as VASP requirements under the Act on Reporting and Using Specified Financial Transaction Information.
In addition, the new registration regime for virtual asset transfer business will take effect on December 3, 2026. Businesses currently operating or preparing cross-border virtual asset transfer services should review their transaction structure and regulatory status before the amended law becomes effective.