South Korea Steps Up Money Laundering Controls in Response to Cambodian Crime Syndicate Threats

South Korea is intensifying its efforts to tackle money laundering risks associated with Cambodian crime syndicates, aiming to safeguard its financial system against illicit activities. Chairperson of South Korea’s Financial Services Commission (FSC), Lee Eok-won, announced a series of reforms on October 27 during an audit before the National Assembly’s Political Affairs Committee. Among these measures is a “preemptive account freeze” mechanism, designed to enhance the government’s ability to intercept and confiscate illegal funds tied to fraud, gambling, drug offenses, and other criminal activities. The government's renewed focus follows mounting fears linked to a Cambodian kidnapping case involving South Korean nationals, sparking concern over the potential for undetected cross-border movement of criminal proceeds.

Anti-Money Laundering Act to Underpin New Proactive Measures

Chairperson Lee emphasized the government's intention to work closely with the Ministry of Foreign Affairs to swiftly designate entities subject to financial transaction restrictions under the Anti-Money Laundering Act (AMLA). “We will expedite measures to block the flow of criminal proceeds by implementing preemptive account freeze mechanisms targeted at high-risk illegal activities,” Lee said.

South Korea’s financial authorities face increasing pressure to act following revelations that Cambodian syndicates may be attempting to exploit digital asset channels to launder money. Without decisive institutional measures, illicit funds could infiltrate the domestic financial system, further compounding risks to national security and financial stability.

Lawmakers Demand Systemic Government Action

Representative Park Chan-dae of the Democratic Party called on financial authorities to adopt proactive and systemic approaches during the parliamentary audit. Park pointedly criticized the financial authorities for their delayed response to Cambodian-linked money laundering threats, stating, “The authorities acted only after international sanctions were imposed, rather than anticipating the risks.”

Park referenced the U.S. and U.K.’s October 14 designation of Cambodia’s Prince Group as a high-risk entity for money laundering, which spurred global action. The designation led to the confiscation of $15 billion in digital assets tied to the group through a lawsuit. South Korean banks subsequently froze accounts associated with the Prince Group, holding approximately 91.2 billion won ($67.7 million). However, Park argued that South Korea’s actions were reactive and driven by international developments rather than proactive domestic measures.

Private Sector Initiatives Outpaced Government Responses

The private sector, particularly cryptocurrency platforms, has demonstrated greater agility in addressing risks associated with Cambodian money laundering. For instance, South Korea's crypto exchange Bithumb implemented restrictions against the Cambodia-based Hui One Group a day before U.S. Treasury sanctions were announced on April 30. By May 2, Bithumb expedited these measures, blocking deposits and withdrawals linked to the group. In October, the platform also banned transactions involving Cambodia’s IX Exchange.

Materials provided by Park’s office revealed that Bithumb conducted substantial transactions, amounting to approximately 14.5 billion won ($10.8 million) with Hui One Group since 2021, primarily through stablecoin Tether (USDT). Meanwhile, other domestic exchanges—including Upbit, Coinone, and Korbit—were similarly linked to Hui One Group but have declined to disclose transaction data despite mounting scrutiny.

Park underscored the urgency of systemic government intervention, stating, “The reactive approach of authorities is insufficient. We need institutional mechanisms to promptly block illicit funds and prevent criminal syndicates from exploiting vulnerabilities within the financial system.”

Financial Regulatory Bodies Commit to Stronger Enforcement

Responding to calls for enhanced oversight, FSC Chairperson Lee affirmed a robust approach to regulating high-risk platforms. He explained that financial transaction restrictions are determined using a “whitelist” framework to systematically target exchanges flagged for money laundering activities. “Entities identified as posing risks will be immediately subjected to financial transaction restrictions under the AMLA, in close coordination with the Ministry of Foreign Affairs,” Lee assured.

Additionally, Financial Supervisory Service Governor Lee Chan-jin highlighted deficiencies in the current self-regulatory framework for detecting abnormal financial transactions. He noted that the Fraud Detection System (FDS), operated voluntarily, falls short of effectively identifying money laundering activities. To address these shortcomings, Lee announced plans to integrate the FDS into formal regulations as part of the Phase 2 Virtual Asset Legislation initiative.

Governor Lee also pointed out the absence of direct supervisory mechanisms for South Korean banks and their overseas subsidiaries, leaving gaps in compliance and enforcement. He pledged to collaborate with the FSC to accelerate amendments to legislative frameworks and enable immediate implementation of strengthened measures.

Heightened Scrutiny on Digital Asset Markets

South Korea’s renewed commitment to combating money laundering aligns closely with rising international and domestic concerns over the exploitation of digital asset markets by criminal networks. Strengthening institutional measures and supplementing private-sector initiatives will be key to deterring illicit financial flows. However, the success of these efforts will depend on the government’s ability to translate policy announcements into actionable, enforceable frameworks.

The increased attention on Cambodia-linked financial risks has marked a turning point in South Korea’s anti-money laundering strategy. As international crime syndicates seek to leverage sophisticated digital channels, the coordinated effort between public and private sectors will be pivotal in fortifying the country’s financial system against emerging threats.