South Korea Used Cryptocurrency to Stop Tax Fraudsters

South Korea police froze cryptocurrency assets from tax fraudsters and quickly collected 47 million USD in tax arrears.

The police of Gyeonggi-do, the region that is home to Seoul, conducted an investigation on about 142,000 tax delinquents, who “have hidden their assets in virtual currency” the Commissioner Kim Ji-ye said on June 21.

The police tracked them down on cryptocurrency exchanges to pay the taxes that they were due. Tax fraudsters can’t hide their assets from authorities anymore. By seizing their digital currencies, South Korea was able to collect 53 billion Won ($46.7 million USD) from 12,613 citizens. That’s an average of ₩4.2 million ($3,700) by person.

Police also gave various examples: a doctor who had ₩2.8 billion ($2.5 million) in digital currency but still owed ₩17 million ($15 000) in property tax since 2018; a person who only had ₩5 million ($4,400) in tax arrears but ₩12 billion ($10.6 million) in digital currency.

To register on digital exchange platforms, the names and date of birth are required the police says. But they don’t ask for the tax identification numbers. As such, it becomes easy to hide money from authorities with an alias not connected to any official documents.

The Commissioner of Gyeonggi-do on a press conference explaining how it collected tax by freezing cryptocurrency assets

No tax identification number, but phone numbers to track fraudsters

However, platforms use the phone number in the identification verification process. The police therefore took the fraudsters’ phone numbers they had in their database for the last 10 years and cross-matched them with the digital accounts. It turned out that 12,613 people, among 141,997 who didn’t pay all their taxes, had cryptocurrency assets.

With the assets frozen, people cannot buy or sell any cryptocurrency and all transactions are suspended. When the city of Seoul blocked virtual currency transactions, 118 out of 676 immediately paid their tax arrears. Almost instantly, the city instantly collected ₩1.26 billion ($1.1 million).

In 2018, the South Korean government had “banned the use of anonymous virtual accounts in cryptocurrency transactions“, requiring “real-name accounts for all cryptocurrency trading“.

The seizure of these assets is backed by a Supreme Court order allowing virtual assets to be confiscated. The action from the police therefore marks a new way to chase and collect tax arrears due by the population. Not to be confused by ramsonware though.

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