Seoul Court Rules Trading With Unregistered Operators ≠ AML Measure Failure

The Seoul Administrative Court’s 5th Division, presided over by Judge Lee Jung-won, ruled on the 9th in favor of Dunamu in an administrative lawsuit challenging a three-month business suspension order issued by the Financial Intelligence Unit (FIU). Following the judgment, the FIU announced plans to appeal the decision, citing remaining grounds for dispute. This case marks the first administrative lawsuit addressing trading between virtual asset exchanges and unregistered virtual asset operators, making it a significant precedent for defining regulatory standards and administrative enforcement scope in the digital asset exchange sector.

The Seoul Administrative Court’s ruling represents a significant interpretation of virtual asset exchange regulatory obligations.

Core Legal Issue: Independent Requirement Interpretation

The central dispute in this case centered on whether “failure to implement necessary measures to prevent money laundering and terrorist financing” constitutes an independent legal requirement for administrative enforcement action. The court examined this question as the foundation for determining whether the FIU’s enforcement order against Dunamu was legally justified.

Dunamu’s legal position held that the specific measures required to prevent money laundering and terrorist financing must be clearly defined in advance for this requirement to serve as an independent basis for administrative action. The company argued that the FIU failed to specify what concrete measures should have been taken, rendering the requirement too vague to support enforcement.

FIU’s Argument and the Court’s Analytical Framework

The FIU maintained that once two conditions are met—(1) transactions with unregistered virtual asset operators and (2) business-purpose trading—the requirement regarding anti-money laundering measures is automatically satisfied. This interpretation would treat trading with unregistered operators as inherently constituting a failure to implement necessary protective measures.

However, the court rejected this reasoning. The court analyzed the statutory language of South Korea’s Financial Intelligence Analysis Act (특금법), Article 7, which states: “Cases where necessary measures to prevent money laundering and terrorist financing are not implemented through intent or gross negligence, as prescribed by Presidential Decree.” The court determined that this statutory language naturally reads as establishing “failure to implement necessary measures” as a separate, independent requirement—distinct from merely trading with unregistered operators.

Statutory Structure and Regulatory Specificity Analysis

The court’s reasoning focused on the distinction between the statutory requirement and the Presidential Decree’s implementing provisions. Under the current regulatory framework, the Presidential Decree specifies two concrete scenarios: (1) failure to comply with customer transaction record segregation requirements (Article 8), and (2) failure to comply with FIU supervision, directives, inspections, or measures (Article 15).

The court noted that Article 15 represents a general supervisory provision regarding the FIU’s authority over financial institutions and does not specifically enumerate the concrete measures required to prevent money laundering. Because the Presidential Decree lacks explicit, detailed specifications of what constitutes “necessary measures” for money laundering prevention, the court concluded that an independent requirement for such measures must exist separately from the general supervisory framework.

This interpretation prevents the FIU from conflating regulatory non-compliance with money laundering prevention measures into a single, undefined requirement.

Transaction Threshold and Risk Assessment Logic

A particularly significant aspect of the court’s reasoning involved the FIU’s own regulatory structure regarding transaction thresholds. The FIU mandates that the Travel Rule and whitelist requirements—which prevent transactions with unregistered operators by design—apply to transactions of 1 million won or more. However, the FIU does not apply these requirements to transactions below 1 million won.

The court interpreted this regulatory distinction as evidence that the FIU itself assesses money laundering and terrorist financing risks as relatively lower for transactions below 1 million won. The court reasoned that if trading with unregistered operators automatically constituted a failure to implement anti-money laundering measures, the FIU would logically apply the same restrictions across all transaction sizes.

Therefore, the court rejected the FIU’s argument that transactions below 1 million won with unregistered operators automatically satisfy the requirement of “failure to implement necessary measures to prevent money laundering and terrorist financing.”

Broader Implications for Virtual Asset Exchange Regulation

This ruling establishes that the presence of transactions with unregistered operators does not automatically establish regulatory non-compliance regarding anti-money laundering measures. Instead, the court has signaled that enforcement actions must be grounded in specific, identifiable failures to implement concrete, pre-defined protective measures.

The decision also clarifies that regulatory agencies cannot rely on vague or circular reasoning—such as “unregistered operator transactions are inherently risky, therefore the operator failed to prevent risk”—to justify administrative enforcement. Instead, agencies must point to specific regulatory requirements and demonstrate that the regulated entity failed to meet those requirements.

Dunamu’s implementation of additional safeguards, including written commitments from counterparties and use of blockchain analysis tools (Chainalysis), was cited by the company as evidence of proactive anti-money laundering measures. While the court did not extensively analyze these measures in the published reasoning, the ruling’s logic suggests such preventive steps strengthen an operator’s defense against allegations of measure failure.

Frequently Asked Questions

Q: What is the difference between trading with an unregistered virtual asset operator and failing to implement anti-money laundering measures?

According to the Seoul Administrative Court’s ruling, trading with an unregistered operator does not automatically constitute a failure to implement anti-money laundering measures. These are separate legal requirements. The court determined that the FIU cannot conflate the two; instead, the FIU must demonstrate that a specific, pre-defined anti-money laundering measure was not implemented. Trading with unregistered operators may indicate elevated risk, but it does not by itself prove that required protective measures were absent.

Q: Why does the FIU apply different rules to transactions above and below 1 million won?

The FIU mandates Travel Rule and whitelist requirements (which prevent transactions with unregistered operators) only for transactions of 1 million won or more. The Seoul Administrative Court interpreted this distinction as evidence that the FIU assesses money laundering risks as lower for smaller transactions. This regulatory structure undermines the FIU’s argument that all transactions with unregistered operators automatically constitute a measure failure, since the FIU itself has determined that smaller transactions warrant less stringent controls.

Q: What happens next in this case?

The FIU has announced plans to appeal the Seoul Administrative Court’s ruling. The case will proceed to a higher court, where the FIU will attempt to overturn the decision. The appellate process will likely further clarify the legal standards for virtual asset exchange regulatory compliance and the scope of the FIU’s enforcement authority.