FIU Accuses Bithumb of Knowingly Ignoring Unregistered Exchange Transactions

South Korea's Financial Intelligence Unit (FIU) argued on October 22 that Bithumb knew it was required to block transactions with unregistered virtual asset operators but failed to implement adequate control measures, constituting intent or gross negligence. The FIU claimed Bithumb conducted 45,772 transfer transactions with 18 unregistered operators including MEXC and KuCoin between August 28, 2022 and April 3, 2025, resulting in a 6-month partial business suspension restricting new customers' external digital asset transfers. South Korea's Special Act on Virtual Asset Transactions prohibits registered exchanges from conducting business-purpose transactions with unregistered operators, with no transaction amount exemptions under the law.

The Seoul Administrative Court Division 2 (Presiding Judge Gong Hyun-jin) held the first hearing on October 22 in the administrative lawsuit between Bithumb and the FIU. The defendant FIU argued that Bithumb knew it was required to block transactions with unregistered virtual asset operators but failed to establish sufficient control mechanisms, constituting intent or gross negligence.

FIU Argues Unregistered Operator Ban Applies Below 1 Million Won Threshold

The FIU representative argued that the Travel Rule obligation and the unregistered operator transaction ban are separate requirements. The FIU stated that the Travel Rule and the unregistered operator transaction ban in question are separate provisions, and that the unregistered operator transaction ban contains no amount threshold such as above or below 1 million won.

The FIU explained that the March 2021 enforcement decree of the Special Act contained provisions prohibiting business-purpose transactions with operators who had not fulfilled reporting obligations. The FIU stated it sent a business cooperation letter on August 18, 2022 to Bithumb and others requesting prompt action. In July 2023, the FIU notified that violations could result in business suspension penalties, and in December 2023 requested careful review as entities not on the FIU list could still be unregistered operators.

Bithumb's Own Notice Stated Amount-Agnostic Restrictions

The FIU argued that Bithumb itself knew that the unregistered operator transaction ban had no amount threshold. As evidence, the FIU presented Bithumb's customer notice from August 25, 2022.

According to the FIU, Bithumb described the overseas operators notified by the FIU as "foreign virtual asset operators conducting illegal unregistered business targeting domestic residents." Bithumb also announced that transactions with unregistered virtual asset operators are prohibited under the Special Act enforcement decree, and therefore related deposits and withdrawals would be restricted from August 28, 2022 regardless of amount.

The FIU representative stated that the plaintiff itself knew what was prohibited and knew there was no amount exception. The FIU added that there was a regulatory obligation, the FIU provided a list, and there were three warnings. The FIU stated that what was missing in this case was not regulations but the plaintiff's control mechanisms.

FIU Details 45,772 Transactions with 18 Unregistered Operators

The FIU explained that Bithumb conducted 45,772 transfer transactions with 18 unregistered virtual asset operators over approximately 2 years and 8 months. The investigation scope was limited to certain digital assets including BTC (Bitcoin), XRP (Ripple), TRX (Tron), and DOGE (Dogecoin). Other digital asset transactions and deposit transactions were excluded.

The FIU representative stated there were 45,772 transfer transactions with 18 unregistered operators including MEXC and KuCoin, and that the plaintiff's intent or gross negligence is clearly recognized. The FIU also argued that customer-requested digital asset withdrawals constitute business-purpose transactions with unregistered operators as they occur during Bithumb's business operations.

MEXC and KuCoin Account for 88.8% of Total Violations

The FIU stated that the majority of total violation transactions were concentrated in MEXC and KuCoin. The FIU representative stated that 88.8% of the plaintiff's violation transactions occurred at these two exchanges.

The FIU explained that 16,296 transactions were transferred to a single MEXC-specific XRP deposit address alone, accounting for 35.6% of total violation transactions. The FIU claimed this address was already registered on Bithumb's blacklist in March 2023.

The FIU representative stated that the blacklist address and the actual withdrawal address were identical. The FIU also explained that 2,952 transactions were withdrawn to this address in March 2024, after which Hong Kong financial authorities publicly warned about MEXC's unlicensed operations.

Blacklist System Failed to Block 14,354 Transactions After Registration

The FIU argued that Bithumb's blacklist did not function properly. According to the FIU, Bithumb registered 40 blacklist addresses, and 9 of these addresses had 14,354 withdrawals after blacklist registration.

The FIU representative stated that although there was a blacklist, it appears not to have functioned properly. The FIU also presented violation counts before and after blacklist introduction.

According to the FIU, before blacklist introduction the average daily violation count was 38.3 transactions. After introduction, it increased to an average of 61 transactions per day. After introducing real-time inquiry measures, it decreased to an average of 21.5 transactions per day.

The FIU explained that Bithumb employees manually downloaded Chainalysis data and updated the blacklist at irregular intervals of 1 to 5 months.

Bithumb Adopted Real-Time Monitoring Later Than Upbit and Coinone

The FIU argued that Bithumb's real-time inquiry measure introduction was delayed compared to other digital asset exchanges. According to the FIU, Upbit introduced real-time blocking measures utilizing Chainalysis functionality on September 5, 2022. Coinone introduced them on March 21, 2023.

In contrast, Bithumb introduced real-time inquiry measures on September 26, 2024.

The FIU representative stated this is not an argument that the specific private program Chainalysis must be used mandatorily, and that other methods could be used if better programs exist. The FIU added that this is an area where leading virtual asset operators must verify and manage themselves.

The FIU argued there was no special reason why Bithumb could not apply real-time inquiry earlier, as Bithumb had been utilizing Chainalysis in its operations since January 2020.

FIU Rebuts Claim That Sub-1 Million Won Transactions Pose Lower Money Laundering Risk

The FIU also rebutted the argument that transactions below 1 million won pose relatively lower money laundering risk. The FIU representative stated that 82.5% of drug-related suspicious transaction reports in the first half of 2025 were transactions below 1 million won. The FIU added that small amounts are not safe but rather become channels to evade surveillance.

The FIU presented examples including Bitcoin used as illegal transaction payments on the dark web, sexual exploitation material sales proceeds laundering cases, N-room fund laundering crimes using XMR (Monero), and digital asset laundering by North Korea-linked hacking groups.

The FIU representative stated that once digital assets go overseas they are difficult to recover, and that once transferred to overseas unregistered operators there are clear limits to domestic investigative agencies' access. The FIU explained that many cases involving overseas unregistered operators since August 2022 were suspended due to these limitations.

FIU Asserts Willful Blindness or Gross Negligence Standard Met

The FIU emphasized that the core issue in this case is whether Bithumb had intent or gross negligence. The FIU representative stated that the plaintiff knew from the beginning that transactions with unregistered operators were prohibited regardless of amount, received the FIU list, and was warned to be cautious about unregistered operators not on the list.

The FIU also argued that based on statements by Bithumb executives and employees and materials from that time, Bithumb was aware that transactions with unregistered operators could occur.

The FIU representative stated that the plaintiff had the technical and financial capacity to prevent this, and that approximately 46,000 transactions with 18 unregistered operators were discovered over 2 years and 8 months. The FIU stated that strong suspicion cannot be excluded that this was not ignorance but rather knowing such incidents could occur and not preventing them for various reasons, constituting willful blindness or at least gross negligence.

FIU Defends 6-Month Partial Suspension as Proportionate Penalty

The FIU also argued that the disposition restricting new customers' external digital asset transfers for 6 months is not excessive. The FIU representative stated that the disposition was limited to the violation area, and that existing customers' external transfers are possible and won and digital asset trading and exchange remain available.

The FIU also explained that from January 2025 to Q1 2026, digital asset transfer fees accounted for only 0.98% of total fees, and withdrawal counts were only 0.2% of trading and exchange counts.

The FIU representative argued that considering these points, it is difficult to view the sanctions as excessive or as an abuse or deviation of discretion.

The court identified as a core issue why Bithumb's control mechanisms did not function sufficiently for transactions below 1 million won after hearing arguments from both sides on October 22. The court requested that Bithumb specifically explain whether there were technical circumstances or other reasons why it could not control transactions below 1 million won. The court also requested that Bithumb rebut the FIU's intent or gross negligence claims focusing on factual circumstances.

The next hearing is scheduled for January 28, 2027 at 4:00 PM.

FAQ

What did South Korea's FIU accuse Bithumb of on October 22?

The FIU accused Bithumb of knowingly failing to implement adequate control measures to block transactions with unregistered virtual asset operators, constituting intent or gross negligence. The FIU claimed Bithumb conducted 45,772 transfer transactions with 18 unregistered operators including MEXC and KuCoin between August 28, 2022 and April 3, 2025.

Why did the FIU impose a 6-month partial business suspension on Bithumb?

The FIU imposed a 6-month restriction on new customers' external digital asset transfers because Bithumb allegedly violated South Korea's Special Act on Virtual Asset Transactions by conducting business-purpose transactions with unregistered operators. The FIU argued there is no transaction amount exemption under the law and that Bithumb knew about this obligation but failed to establish sufficient controls.

How does the FIU's case against Bithumb relate to money laundering concerns?

The FIU rebutted claims that transactions below 1 million won pose lower money laundering risk by stating that 82.5% of drug-related suspicious transaction reports in the first half of 2025 were below 1 million won. The FIU argued that small amounts can serve as channels to evade surveillance and that once digital assets are transferred to overseas unregistered operators, domestic investigative agencies face clear access limitations.