| Do Kwon, the cryptocurrency entrepreneur who created the failed Terra (UST) stablecoin, is taken to a court in Podgorica, Montenegro, March 24. Reuters-Yonhap |
This is the first in a three-part series of interviews with cryptocurrency experts regarding the extradition of fallen Korean crypto entrepreneur Do Kwon, as the Terraform Labs co-founder is wanted by the U.S. and South Korea, after the firm's cryptocurrency hugely devastated retail investors around the world. ― ED.
US crypto expert says more Koreans were affected than Americans by Terra-Luna collapse
By Kim Yoo-chul
The International Criminal Police Organization, also known as Interpol, confirmed in March that a man arrested in Montenegro is Kwon Do-hyeong or Do Kwon, the co-founder of cryptocurrency firm Terraform Labs.
The total collapse of the algorithmic blockchain platform behind the TerraUSD stablecoin and its sister crypto token Luna wiped out some $40 billion from the global crypto market and subsequently set off panic across the sector. In response, Interpol issued a red notice for the arrest of Kwon. He is alleged to have violated Korea's capital markets law.
The disgraced crypto mogul is wanted by the authorities in Korea and the U.S., as both Seoul and Washington have made their respective extradition requests to Montenegro. The core point is to which country Kwon should be extradited, as he faces criminal charges in both.
However, neither Korea nor the U.S. has extradition agreements with Montenegro. Technically, this means that it could be in Montenegro's hands to decide Kwon's next destination.
| Liberty Blockchain CCO Christopher Alexander |
This means that the U.S. and Korea will have to negotiate to see which country gets Kwon first. Kwon himself is positioned to challenge extradition and could use his stay in Montenegro as a way to buy time before he faces the justice systems of either the U.S. or South Korea. He was recently indicted in Montenegro for entering the country with a fabricated passport.
Speaking to The Korea Times, a representative at the U.S.-based Liberty Blockchain said that extradition requests are often about politics, but Kwon should be sent to Korea.
"It appears he affected more South Koreans. But the U.S. has become wildly aggressive with cryptocurrency regulation. Infighting may deeply complicate the decision for the Montenegrins. However, as he is a South Korean citizen and it appears more South Koreans were affected by his actions than Americans, Kwon should go to South Korea," Christopher Alexander, chief communications officer (CCO) at the U.S.-based blockchain company, said in a recent interview.
Alexander added that Kwon must stand trial and serve a sentence for the counterfeit passports he used to enter the Eastern European country.
About the potential punishment in the U.S., he said, "It's very hard to speculate on Kwon's possible sentence in the U.S. because of U.S. authorities' hysteria around crypto assets."
The CCO continued: "Huge sentence lengths are tossed around that are maximum sentences and are rarely ever applied. The longest sentence of any Enron executive was 24 years, reduced to 14."
Both Montenegro and neighboring Serbia, where Kwon had stayed before entering Montenegro, are well-known for off-ramping fraudulent cryptocurrencies, according to the executive. Serbia's pro-crypto politics, for example, made Kwon choose the country to hide in.
Korean prosecutors said it's believed that Kwon may have transferred at least 10,000 bitcoins out of the collapsed project and converted some into cash via an unnamed bank in Switzerland before his arrest. This, if confirmed, can surely make Kwon face legal charges, although some claim that such transactions were part of Kwon's strategy to stress the proximity of the payments to both Terra and Luna.
| A smartphone with the Terra logo is placed on top of U.S. money in this photo illustration taken May 11, 2022. Reuters-Yonhap |
"You have to have a bank willing to convert your crypto and that is not easy to find. I wouldn't be surprised if Kwon was going through a process of sending small transactions over time to try to cash out his cryptocurrency assets and was waiting in a nearby country until it was completed," the senior executive said. "Using runners to make small transactions of lower numbers is a common tactic for terrorist and criminal organizations."
Binance intervention, similarities to FTX scandal?
Korean authorities are moving to freeze Kwon's Terra profits allegedly converted to bitcoins, and Binance, the world's largest cryptocurrency exchange operator, is in talks with the Korean side to prevent Kwon from cashing out his cryptocurrency assets held in an overseas cryptocurrency exchange, which crypto experts say could be Binance.
The illicit gains raised by Kwon and his aides from Terra were estimated to be worth at least 420 billion won. Kwon has no property in Korea. Binance said it was responding to the Korean prosecutors' request, though it added it is unable to comment on the ongoing investigation.
The Liberty Blockchain CCO clarified that he is unable to speak directly on Binance operations. "But it's worth noting that Binance would cover South Korea, and is less transparent, and Binance U.S. would cover activity in the U.S. This could complicate matters as there are technically two Binances, each governed by different rules."
According to Alexander, the transparency of the blockchain means that it is probable that all of Kwon's cryptocurrency transactions can be traced. But once that crypto is off-ramped, it will be like any other case.
"As for the amounts that may have been taken, this may also get very complicated. Many in cryptocurrencies are contemptuous of 'corporate' things like clear processes and accounting. Legitimate and illegitimate money is likely to be completely tangled together, and not for any nefarious reason, just negligence or indifference. This is what happened with FTX," he said. Last year, FTX and its sister trading house Alameda Research went bankrupt, causing a lot of questions about the long-term viability of cryptocurrency.
Regarding questions over the impact of Kwon's arrest on the entire cryptocurrency ecosystem, the expert said the timing is incredibly unfortunate from a market standpoint.
| A liquid immersion cooling mining tank is seen at the TMG Core stand during Bitcoin Conference 2022 in Miami Beach, Florida, April 6, 2022. Reuters-Yonhap |
"As the crypto-panic grips the U.S., any malfeasance is seized upon as 'definitive proof' that cryptocurrency is some sort of national security threat or will cause an existential crisis to the planet. If South Korea follows the worst inclinations of the U.S., both countries will watch this technology change the world and leave them behind with little more to show for it besides pages of regulations that no one is interested in following, so they went overseas," the CCO explained.
In Korea, cryptocurrencies are still viewed as speculative assets. Debates are still going on as to whether cryptocurrency assets should be considered securities, which may be subject to regulation from the bourse operator.
The U.S. is expected to announce its rulings regarding legal troubles between the U.S. Securities and Exchange Commission (SEC) and Ripple, a blockchain company, within the first half of this year at the earliest. The SEC filed a lawsuit against Ripple in 2020, claiming that the company and its senior executives illegally sold XRP, a type of cryptocurrency created in 2012, to investors without initially registering it as securities.
Korea is expected to specify the level of the country's regulation on alternative cryptocurrency assets after the U.S.' rulings.