South Korea to Allow Crypto Voice-Phishing Victims to Recover Stolen Funds

South Korea will open the door for victims of voice-phishing scams involving virtual assets to recover stolen funds, extending relief to crypto losses that had fallen outside the law.

The Financial Services Commission said July 15 it will preannounce revisions to the enforcement decree of the Special Act on the Prevention of Telecommunications Financial Fraud and Refund of Fraud Losses.

The use of virtual assets in telecommunications financial fraud has risen steadily, but crypto has not been included among assets eligible for victim relief, prompting concerns that criminals could exploit the gap. A revised version of the law expanding eligible assets from cash to virtual assets will take effect on Oct. 1. The enforcement decree revision is a follow-up measure that spells out the form of refundable assets and how they will be valued.

Because virtual assets, unlike cash, have different prices depending on the token, the government said separate rules were needed for the form of refunds. Cash will be returned by amount, while virtual assets will be returned by token type and quantity. If the stolen asset differs from the asset left in the fraud-linked account, the refund will be made in the form of the asset remaining in that account when the payment freeze takes effect. If different types of victim assets are mixed together, cash will be counted at face value and virtual assets will be valued at market prices at the time of the payment freeze. Those values will determine the size of each refund.

The revision also sets requirements for designating a dedicated institution to help sell virtual assets subject to refund. If stolen funds are converted into virtual assets during the process of moving the money and are then frozen, victims will in principle receive the assets in crypto form. That could make recovery difficult for victims who have no experience trading virtual assets or do not have related accounts.

To address that, the FSC said it will designate an institution that can sell virtual assets on victims' behalf and distribute the proceeds in cash. Eligible institutions must satisfy all conditions the FSC considers necessary, including having the organization and personnel needed to protect virtual-asset users and support victim recovery.

The FSC said the revision will provide a legal foundation for effective refunds in telecommunications financial fraud cases involving virtual assets. Clear rules on the form of refundable assets and the timing of valuation should also enable faster and fairer repayments when funds from multiple victims are commingled, it added.

The proposal will be open for public comment from July 15 through Aug. 24. It will then go through related procedures and is scheduled to take effect in line with the revised law.