South Korea

Terra co-founder Do Kwon will stay in Montenegro until February: Report

The Terraform Labs co-founder had been awaiting extradition to either the U.S. or South Korea after serving a prison sentence in Montenegro for using falsified travel documents.

Terraform Labs co-founder Do Kwon, expected to be extradited to the United States to face criminal charges, will reportedly stay in Montenegrin custody until February.

According to a Dec. 12 Bloomberg report, authorities with the U.S. and South Korea requested Montenegrin officials hold Kwon for an additional two months following the conclusion of his prison sentence. The Terraform Labs co-founder was arrested in Montenegro in March for using falsified travel documents and sentenced to four months behind bars.

Kwon, a South Korean national formerly based in Singapore, has been charged in the U.S. and South Korea for his alleged role in the collapse of Terra. The Wall Street Journal reported on Dec. 7 that the U.S. would be taking custody of Kwon before South Korea. Both countries have extradition requests pending at the time of publication.

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South Korea excludes NFTs, CBDCs from crypto interest mandate

Users who deposit digital assets to exchanges in South Korea will be eligible to receive interest on their deposits.

South Korean regulator, the Financial Services Commission (FSC), published a notice highlighting that by July 2024, investors in digital assets must receive interest when depositing their funds into an exchange. However, the guidance clarified that nonfungible tokens (NFTs) and central bank digital currencies (CBDCs) are excluded from the law.

On Dec. 10, local media outlets reported the FSC plans to release the legislative guidance. Despite the exclusion of NFTs, the regulator also noted that there can be exceptions. According to the report, even if the tokens are categorized as NFTs but function as a payment method and are issued in large quantities, they may be included in the virtual asset classification. In this case, the assets may be eligible for interest when deposited into exchanges.

Apart from classifying virtual assets, the South Korean regulator also determined the method for handling user deposits for virtual asset operators. The notice highlighted that exchanges must separate user deposits and their own assets and entrust these to a bank. In addition, 80% of the coins must be kept in a cold wallet.

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Italy and South Korea central banks agree on CBDC cooperation

The central banks of Italy and South Korea announced a memorandum of understanding in the development and deployment of CBDCs.

Banca d’Italia — Italy’s central bank — announced on Dec.

According to the Italian central bank, the memorandum of understanding includes the “mutual sharing of knowledge and information” when it comes to information and communication technology (ICT) issues.

Specifically, it mentions ICT issues related to real-time settlement systems and central bank digital currencies (CBDCs).

The announcement said the meeting was attended by the general manager of the Banca d’Italia, Luigi Federico Signorini, who signed off on the agreement.

Related: UK House of Commons recommends further CBDC tests on viability, risks

Throughout the last year, both countries have been exploring CBDCs, though with different approaches. 

In Italy, the central bank has mainly been focusing on interoperability in its solutions for settling distributed ledger technology (DLT)-based transactions via hash-linked contracts rather than a wholesale CBDC approach, as is the case with other European countries.

Meanwhile, South Korea started piloting its CBDC infrastructure technology in October.

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South Korean financial authorities solicit reports on unlicensed crypto exchanges

Financial regulators in South Korea have opened a window of time for people to come forward and report any unlicensed cryptocurrency exchanges operating in the country.

Financial regulators in South Korea released an update on Dec.

The Digital Asset Exchange Association (DAXA) and the Financial Intelligence Unit (FIU) of South Korea collaborated on the initiative. DAXA includes five of the major digital asset exchanges operating in the country — Upbit, Bithumb, Coinone, Korbit and Gopax.

According to the regulators, the goal of receiving these reports is to find domestic and foreign virtual asset business operators targeting Korean citizens and not working per Article 7 of the Specific Financial Information Act.

Reports will first be reviewed by DAXA, and then the results will be forwarded to the FIU, after which it will respond to the former to determine the status of the operator and whether it needs to be notified.

An official from DAXA said that if operators continue to engage in “undeclared business activities,” then the FIU “plans to take necessary measures, including notifying the investigative agency.”

Related: North Korean hackers have pilfered $3B of crypto over past six years: Report

DAXA said reports can be filed through its tip email address and should include all the information related to the business, reasons for suspicion and evidence of its undeclared business activities.

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Do Kwon converted illicit funds from LUNA to Bitcoin: S.Korean prosecutors

South Korean prosecutors have contacted Binance to request a halt on withdrawals linked to Do Kwon.

South Korean prosecutors have identified 414.5 billion won ($314.2 million) in illicit assets associated with Terraform Labs co-founder Do Kwon and his associates. Out of the identified illegal assets, prosecutors have linked about 91.4 billion won ($69 million) of the specified amount directly to Kwon.

Although Kwon amassed millions, none of the assets tied to him are recoverable or under the jurisdiction of the South Korean authorities. This is mainly because the now-arrested former CEO reportedly converted most of the illicit funds into Bitcoin (BTC) using overseas crypto exchanges instead of investing in physical assets, per a report published by local media outlet KBS.

Early investigation into the Terra collapse by the United States Securities and Exchange Commission revealed that Kwon siphoned nearly $100 million worth of Bitcoin from Terra post-collapse. In another report based on an SEC interview with former Terraform Labs, published in South Korean media, Kwon was accused of siphoning $80 million a month before the collapse of the Terra ecosystem.

The South Korean authorities have requested Binance to halt any withdrawal request associated with Kwon. Binance confirmed to Cointelegraph that they are cooperating with the prosecutors and offering any assistance they need. 

“We provided Korean LE authorities with the requested assistance. Since we cannot comment on ongoing LE investigations, for any further comment please reach out to the prosecutors.“

South Korean prosecutors are actively tracing properties associated with Terraform Labs executives to recover some illicit funds from the Terra debacle. On April 3, prosecutors seized homes and other assets to stop former Terra employees from selling things that might be tied to legal cases.

In addition to the residences in Seoul owned by former CEO Shin Hyun-seong and others, the prosecutors also filed foreclosure actions against their foreign-registered vehicles, lands in Hwaseong and Gapyeong in Gyeonggi-do, and Taean in South Chungcheong Province.

Related: Do Kwon faces fraud charges from US prosecutors hours after arrest

Terra was a booming crypto ecosystem until its $40 billion collapse in May 2022.

What was initially thought to be a market-triggered event turned out to be a clear case of fraud, with former CEO Kwon at the epicenter. According to on-chain data, In the 3 weeks leading up to the depeg of the TerraUSD (UST) stablecoin, one entity dumped over $450 million of UST on the open market. Four days after the last sale, UST started collapsing. The entity behind the massive dump was none other than Terraform Labs.

Despite an arrest warrant from South Korean authorities and an Interpol red notice against his name, Kwon continued to evade arrest for nearly a year before getting caught on March 23 in Montenegro.

South Korean authorities seize $160M in assets tied to Terra employees: Report

Prosecutors reportedly took control of houses and properties in an attempt to prevent former Terra employees from disposing of assets potentially connected to criminal proceedings.

The Seoul Southern District Prosecutor’s Office has reportedly confiscated roughly $160 million worth of assets from eight people connected to the collapse of Terraform Labs, including co-founder Daniel Shin.

According to an April 3 report from South Korean news outlet KBS, authorities seized roughly 210 billion won — $160 million at the time of publication — worth of property connected to former Terra employees, mainly in the form of real estate. Prosecutors reportedly took control of houses and properties owned by former Terra Vice President Kim Mo and an unnamed executive worth roughly $60 million and $31 million, respectively.

“We are still investigating the property ownership status of the suspects, and we plan to carry out collection preservation for the confirmed property in the future in order to recover the proceeds of crime and recover damages,” said a spokesperson for the prosecution team.

The prosecutors’ actions were reportedly aimed at preventing former Terra employees from disposing of assets in an attempt to ensure they were part of potential criminal proceedings. In November, authorities took similar measures by seizing Shin’s home in Seoul, but are reportedly still investigating other assets allegedly connected to the Terra co-founder.

At the time of publication, no South Korean court had authorized an arrest warrant for Shin. The report also did not mention any crypto assets seized as part of the investigation.

Related: Terra’s branding at MLB opener draws attention from spectators

After months without definitive public knowledge of his whereabouts following the collapse of the platform, Terra co-founder Do Kwon was arrested in Montenegro in March. Montenegrin Justice Minister Marko Kovač announced on March 29 that the local government had received requests from both the United States and South Korea regarding taking Kwon into custody.

Magazine: Terra collapsed because it used hubris for collateral — Knifefight

Terra co-founder Do Kwon’s jail time in Montenegro will be harsh: Report

Now in custody in Montenegro, Do Kwon could be facing “at least a year” behind bars as the country considers extradition requests, according to one criminal defense lawyer.

Do Kwon, currently in custody in Montenegro and potentially awaiting extradition to the United States or South Korea, will reportedly face harsh conditions in the country’s penal system.

According to a March 29 Protos report, an unnamed criminal defense lawyer said conditions at Montenegro’s jails and prisons “haven’t changed” from those described in a 2020 human rights report by the United States State Department. The report cited a case in which prison officers had been convicted of torturing and “inflicting grievous bodily harm” on 11 inmates in 2015, as well as other “poor” conditions in some of Montenegro’s prisons due to overcrowding and lack of medical care.

Citing reports from the Council of Europe’s Committee for the Prevention of Torture, the State Department said many prisoners had been confined to overcrowded cells for roughly 23 hours a day, with some reports of violence between inmates. Kwon could be facing “at least a year” in such conditions as Montenegro considers extradition requests, depending on the outcome of his criminal case over allegedly forged travel documents.

“Rooms are 8 meters squared and very crowded,” the lawyer reportedly said. “There’s about 10 to 11 people in a room — there’s usually not even a bed.“

Kwon, whose whereabouts had largely been unknown following the collapse of Terra in May 2022, was detained at the Podgorica airport in Montenegro on March 23, after which time authorities confirmed his identity. The country’s Ministry of Justice announced on March 29 that both the United States and South Korean had made extradition requests for the Terra co-founder, but he could first face criminal charges in Montenegro. 

Kwon’s last tweet before his arrest in Montenegro, posted on Feb. 1.

Related: Do Kwon registered a company in Serbia for $1 amid Interpol red notice: Report

At the time of publication, it’s unclear whether South Korea or the U.S. will be able to gain custody of Kwon, a South Korean national. The situation echoes that of former FTX CEO Sam Bankman-Fried, who was in the Bahamas at the time of the exchange’s collapse and held in a detention facility with reported cases of physical abuse against prisoners and harsh conditions. Bankman-Fried is currently on bail in the U.S. while he awaits trial. 

Magazine: The ‘godfather of crypto’ risked lifetime in jail, laying foundation for Bitcoin

US and South Korea requested extradition of Terra co-founder Do Kwon — Montenegro justice minister

Do Kwon may have to serve time in Montenegro if convicted of charges related to forged identification documents before any extradition to the U.S. or South Korea is granted.

Authorities from both the United States and South Korea have made efforts to have Terra co-founder Do Kwon extradited to their respective countries following his arrest in Montenegro.

At a March 29 press conference, Montenegrin Justice Minister Marko Kovač said the United States made diplomatic efforts to ask for Kwon to be handed over, while South Korean officials have requested extradition. Kovač made the announcement following Kwon’s arrest at Montenegro’s Podgorica airport on March 23, adding the Terra co-founder’s detainment had been extended to 30 days.

“In the case when we receive several extradition requests, I would like to say that determining to which state they will be extradited is based on several factors like the severity of the committed criminal offense, the location and time when the criminal offense has been committed, the order in which we have received the request for extradition and several other factors,” said Kovač through an interpreter.

Kovač said decisions regarding custody of Kwon will go to Montenegro’s high court. According to the justice minister, the Terra co-founder used allegedly forged passports while in Montenegro and may serve time in the country related to those charges if convicted before any extradition is granted.

Kwon’s whereabouts had largely been unknown following the collapse of Terra in May 2022, though he was often active on his Twitter account and said he was making “zero effort to hide” in September. In February, reports suggested that Kwon may have traveled to Serbia — the European country borders Montenegro to the north — after Interpol issued a Red Notice for his provisional arrest.

A South Korean citizen, Kwon would likely face prosecution in his home country, where Terraform Labs was headquartered and authorities have been targeting individuals involved in the collapse of the platform. At the time of publication, the whereabouts of Terra co-founder Daniel Shin were unknown, but Kwon’s associate Han Chang-Joon was also detained in Montenegro.

Related: Korean e-commerce exec accused of accepting LUNA for shilling Terra Labs

It’s unclear which country, if any, would be the most likely to be granted extradition of Kwon. The situation echoes attempts by the United States to gain custody of former FTX CEO Sam Bankman-Fried, who was in the Bahamas at the time of the exchange’s collapse.

Magazine: ‘Terra hit us incredibly hard’: Sunny Aggarwal of Osmosis Labs

Do Kwon to reportedly appeal against court’s decision to extend detention

A legal representative of Kwon confirmed the appeal against the Montenegrin court’s decision to detain the entrepreneur for 30 days longer than usual.

Following his arrest in Montenegro while attempting to fly using fake documents, Terraform Labs co-founder Do Kwon will reportedly appeal the court’s decision to extend detention time for up to 30 days.

A legal representative of Kwon confirmed the appeal against the Montenegrin court’s decision to detain the entrepreneur for longer than usual, according to local media Vijesti. The decision was made after Kwon was caught using fake documents at Podgorica airport while trying to fly to Dubai.

While Montenegro authorities typically allot detention for up to 72 hours, Kwon’s 30-day extension was approved after prosecutors highlighted the high possibility of an escape. The court considered that Kwon was a foreign national whose identity was not clearly identified.

Since the collapse of the Terra ecosystem, Kwon has been suspected of moving between Singapore, Dubai and Serbia by South Korean authorities.

Related: South Korea seizes $104M from Terra co-founder suspecting unfair profits

On March 23, a few hours after Kwon’s arrest in Montenegro, United States prosecutors in New York charged the entrepreneur with fraud.

As Cointelegraph reported, the 31-year-old was charged with eight separate counts, including commodities fraud, securities fraud, wire fraud, and conspiracy to defraud and engage in market manipulation.

Magazine: SEC targets Coinbase, Do Kwon arrested and FTX sells $95M in Mysten Labs: Hodler’s Digest, March 19–25

Crypto Biz: SVB collapses, USDC depegs, Bitcoin still up

Turmoil in traditional finance spilled over into Bitcoin and crypto markets, forcing federal regulators to step in.

Crypto investors should know by now that it doesn’t take much to topple a distressed multi-billion-dollar firm. On March 10, California regulators officially shut down Silicon Valley Bank (SVB) 48 hours after the company disclosed it was in financial distress. As Cointelegraph reported at the time, SVB is the first Federal Deposit Insurance Corporation (FDIC)-insured bank to fail in 2023. That crucial detail prompted federal regulators in the United States to step up and backstop SVB depositors before a bank run could ensue. Although government protections weren’t enough to stem a massive drop in bank stocks once markets reopened on Monday, Bitcoin (BTC) and the broader crypto market soared. Did FDIC bail out Bitcoin? Only time will tell.

The SVB fiasco triggered a short but intense period of fear and trepidation in crypto markets as Circle’s USD Coin (USDC) depegged. The only thing Circle did wrong was holding a portion of its deposits at SVB when it collapsed.

This week’s Crypto Biz tries to make sense of SVB’s failure and how it affected crypto markets.

Silicon Valley Bank shut down by California regulator

On March 10, the California Department of Financial Protection and Innovation shut down Silicon Valley Bank and appointed FDIC as the receiver to protect insured deposits. The news triggered a fire sale in crypto and financial markets as SVB was a top-20 U.S. bank by total assets. So, what compelled regulators to close the bank? Earlier in the week, SVB released its mid-quarter financial update, which disclosed a $1.8 billion loss tied to securities sales and the need to raise $2.25 billion to shore up operations. SVB was a trusted partner of many crypto-focused venture capital firms, but its demise was ultimately tied to duration risk, not crypto industry exposure. Washington put out the SVB fire quickly by announcing that all depositors, and not just accounts worth up to $250,000, would be protected. President Joe Biden later confirmed that shoring up depositors would not cost the taxpayer anything.

Circle ‘able to access’ $3.3B of USDC reserves at Silicon Valley Bank, CEO says

One of the companies caught in the crosshairs of SVB was stablecoin issuer Circle, which had $3.3 billion in reserves tied up at the failed bank. USDC lost stablecoin market share — and its peg to the U.S. dollar — once SVB collapsed because it wasn’t clear if and when Circle could access its funds. At its lowest point, USDC fell to around $0.87. The stablecoin has since returned to par with the dollar, with Circle confirming it could access reserves held at SVB. Circle lost significant market share over the past week due to ongoing USDC redemptions. USDC’s market cap currently stands at $38.4 billion, less than half of rival Tether, whose USDT is valued at nearly $73.6 billion.

Breaking: Signature Bank closed by New York regulators, citing ‘systemic risk’

SVB wasn’t the only crypto-friendly bank collapse this week. On March 12, the Manhattan-based Signature Bank was officially shuttered by the New York Department of Financial Services, allegedly to protect the U.S. economy and strengthen the public’s confidence in the banking system. “The actions that we took today were designed to limit the consequences of the depositor outflows from Silicon Valley and from Signature and to reduce any spillover effects,” a Treasury official reportedly said. Like SVB depositors, all accountholders at Signature will be made whole without affecting taxpayers. Signature Bank had nearly $89 billion in deposits as of Dec. 31, 2022.

South Korea launches ‘Metaverse Fund’ to expedite domestic initiatives

“Metaverse” is still a vague and underdeveloped concept, but South Korea is taking it very seriously. Seoul’s Ministry of Science and ICT announced it would allocate 24 billion won ($18.1 million) toward metaverse development as part of a bigger pot worth 40 billion won ($30.2 million). The newly launched Metaverse Fund is said to support mergers and acquisitions of various metaverse-related companies — a move that could give the country an upper hand in the still-evolving sector. The metaverse arms race continues. As Cointelegraph reported earlier this month, Mark Zuckerberg’s Meta won court approval to continue its metaverse acquisition plans.

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