The South Korean government is cracking down on “hwanchigi” (illegal foreign exchange) following a record surge in suspicious crypto activity.
The Seoul Customs Service has announced the dismantling of a major illegal cryptocurrency exchange ring responsible for laundering and exchanging approximately $113 million.
Three Chinese men have been arrested in connection with a cryptocurrency crime group that operated for over four years using tactics like peeling chains and hwanchigi to avoid being caught.
It took the “Crime Fund Tracking Team,” a 126-member unit formed by the Korea Customs Service (KCS), to finally crack the case.
The government created a “Government-wide Response Team against Illegal Forex Transactions” in January 2026 that includes members from the Ministry of Finance, the National Intelligence Service, and the Financial Crime Investigation Division.
$113 million illegal crypto ring busted
The Seoul Customs Service has sent three Chinese men in their 30s, accused of violating the Foreign Exchange Transaction Act, to the prosecutor’s office. Over four years, the group managed to launder and illegally exchange approximately 148.9 billion won, which is about $113 million.
The group began its operations in September 2021 and continued until last year. They purchased virtual assets in various foreign countries and transferred them to digital wallets in South Korea; afterwards, they converted the crypto into Korean won. The cash would then be withdrawn from domestic bank accounts after receiving payments from their customers through Chinese mobile apps like WeChat Pay and Alipay.
The customers used these illegal services for many reasons, such as paying for trade goods or duty-free items. Some customers used the ring to send funds for studying abroad.
Interestingly, one of the suspects worked as the head of a plastic surgery counseling room and used his position to recruit foreign customers by promising them a way to pay for expensive surgeries without using official banks. This allowed the customers to hide the origin of their money and avoid high bank fees.
South Korea is currently facing a record-breaking wave of crypto crime. In 2025, the country reported over 36,000 suspicious transaction reports (STRs). This is double the amount from previous years.
How did the illegal crypto exchange ring operate for years?
The ring was able to remain undetected for so long by using “hwanchigi,” a method of moving money across borders without actually sending it through a bank. Cryptocurrency platforms allow for some anonymity, making it difficult for regular bank monitors to see that the transactions made by the group were actually payments for goods and services.
The suspects also used “peeling chains” and multiple bank accounts. The group would split large sums of money into smaller amounts and route them through many different digital wallets and accounts to hide its origins.
To stop illegal foreign exchange, the Financial Services Commission (FSC) announced early this year that the “Travel Rule” will now require exchanges to report the identity of anyone sending even small amounts of crypto, including transfers under 1 million won ($680).
Following a $36 million hack of the Upbit exchange in late 2025, the FSC is pushing for a bill that would treat crypto platforms like banks. This means exchanges would have to pay heavy fines of up to 10% of stolen assets if they fail to protect customer money.
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