Korean regulators are investigating banks worth more than $6.5 billion linked to the kimchi premium

South Korean banks are under investigation over their role in facilitating suspicious offshore transfers worth $6.5 billion that have been linked to cryptocurrency arbitrators.

According to an August 15 report from Asia Times, the Financial Supervision Service (FSS) ordered an investigation into South Korean banks last month after identifying a large number of overseas remittance transactions at the end of June.

The investigation found that the majority of the $6.5 billion that was transferred abroad between January 2021 and June 2022 came from cryptocurrency exchange accounts before it was sent out of the country, indicating that some Korean companies are exploiting “Kimchi Premium (Kimp).”

The kimchi premium is the gap in cryptocurrency prices on South Korean exchanges compared to foreign exchanges. Investors buy cryptocurrencies from foreign exchanges and sell them on local Korean exchanges for profit.

Regulators were concerned about the circulation of premium kimchi as it encourages capital flight from the country.

Currently, the Kimchi premium remains modest +3.37% but was above +20% last April according to the market Keep track of cryptoquant.

Reports from Shinhan Bank and Woori Bank found that most of the transferred funds were first transferred from local crypto exchanges to various corporate accounts of Korean companies.

These massive transfers have raised danger signs that investors are using huge amounts of money to exploit the kimchi premium, according to an August 15 report from local news. Director Asia Times.

There are also doubts about the use of transferred funds for money laundering, according to To the KBS news outlet on August 14, some employees of the unnamed companies that made the transfers were arrested.

The total amount sent abroad was more than double what the FSB had expected to find when it instructed banks to look into the matter. The Asia Times reports that the FSS is now expected to conduct additional on-site investigations of local banks, which could reveal more of the funds transferred.

Related: South Korea’s FSA wants to review crypto legislation ‘quickly’: Report

The Department of Financial Services is now expected to sanction Shinhan and Woori for allowing the largest amount of transfers. The Asia Times wrote that Lee Bok-Hyeon, head of the FSS, said, “We take foreign exchange treatment very seriously, and sanctions are inevitable.”

Investigations at the site are underway in Shinhan Woori, but will end on August 19.