Research Center Highlights Overvaluation in Overseas Crypto Holdings Reported to Korean Tax Agency

No Turkish Delight for Crypto Exchange CEO Sentenced to 11,196 YearsIn a landmark ruling, Faruk Fatih Ozer, the 29-year-old Turkish Founder and CEO of defunct Turkish crypto exchange Thodex, has been sentenced to 11,196 years in prison for orchestrating a massive fraud that left investors out of pocket.Photo by engin akyurt on UnsplashExtradited from AlbaniaBloomberg reported on Friday that Ozer, the mastermind behind the Thodex exchange, fled to Albania in 2021, vanishing along with millions of dollars in investor assets as the exchange suddenly crumbled.His arrest in Albania on an Interpol warrant marked the beginning of a lengthy legal battle. Having spent months on the run, he was finally extradited back to Turkey in June, where he faced charges of money laundering, fraud, and organized crime. During the trial in Istanbul, Ozer defended himself, claiming that his actions did not demonstrate criminal intent. He asserted:“I am smart enough to lead any institution on Earth.”“That is evident in this company I established at the age of 22. I wouldn’t have acted so amateurishly if this were a criminal organization,” he added. Nevertheless, the court found him guilty, along with his sister Serap and brother Guven, who faced the same charges.Lengthy jail termThe sentences handed down were notably long, with the defendants sentenced separately for multiple crimes against 2,027 victims. Following the abolition of the death penalty in 2004, lengthy prison sentences are quite common in Turkey.Prosecutors had initially sought a jaw-dropping 40,562-year prison sentence for Ozer, although the difference would have been purely symbolic when compared with the sentence which was ultimately handed down. The Thodex exchange, founded in 2017, quickly rose to prominence as one of Turkey’s largest cryptocurrency platforms.Ozer’s financial acumen earned him national recognition, and he even cultivated ties with influential pro-government figures. However, the sudden implosion of the Thodex exchange in April 2021 shook the cryptocurrency world. Investor assets vanished, and Ozer went into hiding.Reports initially indicated that Ozer had fled with assets worth $2 billion, but the prosecutor’s indictment put the total losses to Thodex investors at 356 million Turkish liras. The depreciation of the lira and rampant inflation since the exchange’s collapse means that this amount is now equivalent to around $13 million on the international markets.Lagging regulationThe Thodex case serves as a stark reminder of cryptocurrency market risks, given its immature state and the lag in regulators responding to the innovation in order to ensure a safe marketplace for investors.Despite this setback in the development of the crypto ecosystem within Turkey, interest in crypto is stronger than ever. A recent report produced by Seychelles-based crypto exchange KuCoin found that there has been a significant increase in crypto market participants in Turkey over the course of the past 18 months. It’s likely that runaway inflation of the Turkish lira is providing Turks with the motivation to investigate crypto as an alternative.

Seoul prosecutors charge eight suspects linked to crypto price manipulationEight individuals involved in a cryptocurrency fraud, which is separate from a murder case associated with the same token, have been formally charged and referred to court by public prosecutors in South Korea.The Joint Virtual Asset Crime Investigation Unit of the Seoul Southern Prosecutors’ Office has recently disclosed the arrest of two key figures in the scandal related to a cryptocurrency called Puriever (PURE). The unit apprehended the chief executive of the PURE issuer, referred to as “A” for anonymity, and a market manipulator. Both have been charged with fraud. In addition to these arrests, the prosecution has charged six other individuals–including an executive from a cryptocurrency consulting firm, anonymously named “C,” and a broker. These additional suspects have been charged but not arrested.Photo by Adam Śmigielski on Unsplash$16 million from over 6,000 victimsThe prosecution has accused the suspects involved in the PURE case of illicitly inflating the token’s price through deceptive disclosures and market manipulation during April and May 2021. This scheme reportedly enabled them to amass illegal profits totaling KRW 21 billion (close to $16 million) from approximately 6,100 victims. In March of this year, it came to light that the PURE was at the center of a series of criminal activities, including kidnapping and theft, which ultimately led to a murder in Gangnam, Seoul.The prosecution has uncovered that “A” and “C,” key figures in the PURE scandal, transferred 55.2 million PURE to a partner company under the guise of an initiative to reduce air pollution, as falsely stated in their disclosure. The suspects reportedly employed a skilled manipulator to inflate the token’s price artificially. Once the price peaked, they sold off the tokens, capitalizing on the artificially inflated value.Circulation supply manipulationThe case reveals a collective scheme orchestrated by a token issuer, a consulting entity, a broker, and an experienced market manipulator. A key tactic in their scheme involved locking their cryptocurrency wallet to artificially limit the token’s circulation supply. Furthermore, these fraudsters employed a bot to perform wash trading, which boosted the daily trading volume of the token. This strategy created a false impression of high demand and activity in the market.A representative from the prosecution emphasized that the cryptocurrency market is more susceptible to manipulation than the stock market. This vulnerability is attributed to the lack of a monitoring and supervision system in the crypto sector, despite its speculative nature. In response to these challenges, the prosecution has expressed a firm commitment to enhancing its crypto investigation capabilities with the goal of effectively combating criminal activities. These efforts are aimed at fostering a fair and transparent trading environment, safeguarding the integrity of the cryptocurrency market.

In a move to enhance the oversight of cross-border wire transfers involving virtual assets, Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, is fortifying the implementation of regulations relative to crypto transfers.Photo by C Bueza on UnsplashTravel rule clarificationsLocal news outlet, the English language newspaper The Philippine Star reported that central bank memorandum 2023-042 provides clarifications on the travel rule for virtual asset service providers (VASPs). The travel rule requires financial institutions to pass on information to the next institution where a transaction takes place. The BSP aims to bring greater clarity to several aspects, including the applicability of the P50,000 transaction threshold and expectations regarding transactions involving jurisdictions without travel rules. Additionally, further interpretation is being provided concerning the extension of the Philippine travel rule to non-custodial VASPs and regulatory expectations surrounding transactions with unhosted wallets or crypto wallets controlled directly by their owners, rather than managed by third-party service providers. FATF compliance ambitionThis regulatory move is in response to the directives from the Paris-based Financial Action Task Force (FATF). In 2021 the Philippines came under greater scrutiny from the intergovernmental organization, when it was included on its "gray list," making it a candidate for increased monitoring. The FATF has called upon the Philippines to establish guidelines for the travel rule to prevent terrorists and criminals from exploiting virtual asset transfers for the unrestricted movement of their assets and to detect and prevent misuse effectively.BSP-supervised financial institutions (BSFIs) are now mandated to scrutinize specific details of virtual asset transfers, including the originator's name, account number used in the transaction, originator's physical address or national identity and the beneficiary's name and account number. International moves towards complianceThis latest move by the Philippine central bank is not unusual. In recent months, a plethora of similarly motivated central banks around the world have tightened up on crypto regulation as it relates to the FATF directives. Being on the FATF's "gray list" is bad for a country’s reputation. It has the potential to result in loss of investor confidence and lead to higher compliance costs and greater monitoring. Additionally, it may have an impact on trade relations and damage a country’s ability to access international finance.  Turkey has also found itself on the organization’s gray list. Working towards repairing that situation, Turkey is in the process of establishing a crypto regulatory framework that will be FATF compliant.In May, Pakistan went a step further in banning cryptocurrency. At the time, its Minister of State for Finance and Revenue, Aisha Ghaus Pasha, stated that the ban had been a requirement for Pakistan’s removal from the FATF gray list. A tightening of crypto regulations has also occurred in the United Arab Emirates (UAE) and in Hong Kong more recently, as those territories work towards ensuring FATF compliance. The BSP emphasizes that transactions not surpassing the P50,000 threshold or its equivalent in foreign currency must include the names and account numbers of both the originator and beneficiary. Both originating and beneficiary VASPs are required to establish and adhere to robust sanction screening procedures, ensuring compliance with sanctions lists and preventing transactions involving sanctioned individuals, entities, or jurisdictions.