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Comments On Korean Gov’s Cryptocurrency Transaction Real-Name System : In Perspective of Fundamental Rights

Comments On Korean Gov’s Cryptocurrency Transaction Real-Name System : In Perspective of Fundamental Rights

The Financial Services Commission of Korea announced ‘The result of virtual currency exchange investigation and money laundering prohibition guidelines’ on Jan 23, 2018, in the name of the vice chairman. In December last year, the Office for Government Policy Coordination in front of the press declared ‘Emergency Measurements’ and ‘Special Measurements’. Therefore, the announcement is regarded as a kind of enforcement for these two measurements. The original deadline was January 20, but the government did not keep the deadline.

Above all, the most noteworthy part of this announcement is that the Financial Services Commission’s ‘Special Measurements’, in other words, ‘Cryptocurrency Transaction Real-Name System’ enters into force from Jan 30. However, such terms as ‘the real-name system’ and ‘hive accounts’ which government officials use cause individuals to wonder what the hell they mean. The term ‘real-name system’ is mainly used in Korea in cases of ‘real-name real estate property ownership system’ and ‘real-name financial transaction system.’ People also wonder what this new real name system is in relation to these old systems. The government explains the ‘Cryptocurrency Transaction Real-Name system’ as follows :

“Cryptocurrency Transaction Real-Name System : Once ‘cryptocurrency transaction real-name system’ is in effect, a trader who has cryptocurrency trading account in any exchange should open a personal bank account in the same bank that the exchange opens virtual trading accounts in. Without such a personal account in the same bank, he or she cannot put fresh fund in his or her trading account at the exchange. However, he or she can withdraw fund out of the exchange service without opening any new account. Therefore, a new trader has to open an account in the same bank that the exchange service uses for opening virtual trading accounts. Foreigner and minors might have some troubles in opening their new bank accounts for cryptocurrency trades. Once ‘Real Name Checking System’ is implemented, the old ‘virtual account services’ cannot be utilized anymore.” (Jan. 23, 2018 / the Financial Services Commission)

In addition, the ‘guidelines’ notifies that handling more than 10 million won a day or more than 20 million won a week, whether deposit or withdrawal in each exchange will be reported to Korean Financial Intelligence Unit incurring the automatic review.

Korean individuals supposedly guess this kind of government actions should be supported by some legislation which already exists. They tend to think they might be able to find some articles or sections supporting these new regulations. It’s because any modern democratic government could take such measures only with some supporting legislations. Actually, democracy and rule of law are such things by definition. The Republic of Korea is under the rule of law and democracy. Therefore, they have no choice but to think like above.

As everyone knows a constitutional petition was filed by our law offices against this special measurement as the government’s violation of basic fundamental rights. After this petition, the Constitutional Court also did the first step of sending an official enquiry letter about legal foundations for such measurements to the Korean government.

For answering this enquiry, the government was given just five days. This enquiry was requested by the famous judge, Mr. Kang, Ilwon who became a star judge during the impeachment procedure for our ex-president Ms. Park. And, for this inquiry, the Financial Services Commission on behalf of the Office for Government Policy Coordination answered that the legal basis for these measurements is set by the Bank Act as ‘governmental authorities’ right to recommend on changes of contract stipulations of Terms and Conditions to financial institutions’ and ‘governmental authorities’ right to order and instruct banks when needed to supervise financial institutions’.(2018/01/15 The Financial Services Commission Answer to Enquiry).

Strikingly, in fact, any such changes have been not made according to recommendations. We even doubt if there is such a recommendation. Moreover, there is no official documents containing such order or instruction in the name of Financial Intelligence Unit against banks.

The Financial Services Commission on 2018.1.25. submitted to the Constitutional Court an opinion paper named “Opinions concerning the Constitutional Complaint.” In this, the Financial Services Commission claims three full-fledged constitutional theories as follows :

1. ‘Internal debate’ theory : only internal discussions of government agencies

2. ‘Voluntary cooperation’ theory : banks cooperate just voluntarily

3. ‘Indirect interests’ theory : there is no direct impact of the measurements on individuals.

Virtually, these arguments mean that the government only had internal discussions and did not, in fact, exercise any governmental authority, and accidentally the banks voluntarily cooperate with them, and moreover the petitioner does not have a direct impact from these voluntary cooperations of banks. The last argument’ key point lies in that the so-called ‘hive accounts’ could be used by the petitioner after measurements because only virtual account services were banned from Jan 1st, 2018. However, they announced in front of many reporters that they will stop all financial services to exchanges running ‘hive accounts.’

This is a really dreadful logic. If these arguments could widely be acceptable, states could oppress monopoly companies that obey the opinion of the government without a single piece of an official letter in order to make the de facto legislation and just say it is entirely voluntary based on good faith of those companies, staying totally free from all responsibilities.

Financial institutions, especially banks, are necessary for almost all of the activities of individuals concerned. So, unpredictable forms of bans on individuals’ activities can be enforced without any review of legislators in the names of banks.

According to the theory of the Constitutional doctrine of State Action (state action doctrine) based on Public Utilities Commission v. Pollak(343 U.S. 451, 1952) individuals can object to this kind of state actions as a violation of fundamental rights prescribed in Constitution. This is also called ‘government regulation theory’.

Anyway, if the Constitutional Court accepted the logic of the Financial Services Commission, this Constitutional Court’s opinion could be regarded as a strange confession like “our government-controlled finance system has still been maintained from the times of military dictatorship in the Republic of Korea.” Therefore, we need pay attention to the Court’s reply to such strange and absurd opinion of the Financial Services Commission.

Mr. Heechan Jeong, Anguk Law Offices (hcjeong@anguklaw.com)

 

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