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| Terraform Labs co-founder Do Kwon is seen on the left in this photo illustration. Yonhap |
This is the second 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 expert in forensic crypto probe calls for Seoul-Washington partnership for cryptocurrency regulation
By Kim Yoo-chul
Following the collapse of the once-trusted algorithmic blockchain platform behind the TerraUSD stablecoin and its sister cryptocurrency Luna, which wiped out at least $40 billion from the crypto industry and set off a panic, the co-founder of crypto company Terraform Labs Kwon Do-hyung (aka Do Kwon) is wanted by the authorities in both the United States and South Korea.
Because the crypto fugitive is alleged to have violated Korea's Capital Markets Law, prosecutors here have been attempting to retrieve any illicit gains and unlawful funds linked to Kwon and his top confidants.
So far, the prosecution has located 463 billion won in funds and assets closely tied to Kwon, according to the Seoul Southern District Prosecutors' Office. The office assessed Luna tokens as "securities" as they had been used to raise funding for Terra projects.
But the vast majority of Kwon's gains are considered "unrecoverable," as he is believed to have converted them into bitcoins utilizing crypto exchanges. Based on this assessment, the prosecutors' office asked Binance to prohibit and prevent him and his partners from extracting any cash or cash-equivalent assets.
Binance confirmed it was cooperating with Korean prosecutors as requested, and it has two major reasons to do so, according to a global expert in forensic cryptocurrency investigations.
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| Evan Spicer, director of cryptocurrency investigations at MyChargeBack |
"Binance has really made an effort to move out of the U.S. as much as possible to try and protect itself. So it is not going to want to cross any of its other host countries the wrong way, especially not one that is close to the U.S. like South Korea."
The company, a member of the American Bankers Association, has been working with over 800 banks and financial institutions in the U.S., Europe and Africa on cryptocurrency fraud cases. It has offices in London, Tel Aviv and Pretoria in South Africa.
Regarding the estimated amount of Kwon's assets in the exchange, the director at the analytics company responded it would be in the "billions of dollars" without elaborating further.
"We are talking about what was the industry-leading stablecoin. So, its circulation for facilitating crypto transactions across the globe would have made it one of the top cryptocurrencies in circulation in terms of volume," said Spicer, also a certified crypto blockchain forensics examiner.
Kwon's legal representatives have claimed that a lawsuit filed by the U.S. Securities and Exchange Commission (SEC) against Terraform Labs and him is "unfounded," insisting that the stablecoin is a currency rather than a security. The SEC claims that Terraform Labs had illegally offered "unregistered securities," while Kwon's lawyers claim even the U.S. Congress has yet to agree on what qualifies as "securities."
A court in Montenegro approved Kwon's continued detention after his indictment by local prosecutors on charges of holding fabricated travel documents he planned to use to fly to Dubai.
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| Souvenir tokens representing the cryptocurrency Bitcoin and the Ethereum network with its token ether, plunge into water in this May 17, 2022 photo. Reuters-Yonhap |
Spicer said he stands by the SEC's position to view cryptocurrencies as securities. In the EU, the European Parliament recently approved the world's first package of rules aimed at regulating the crypto industry. The European Securities and Markets Authority will have the authority to intervene, restrict or even ban crypto platforms if they aren't ready to protect investors.
"Every crypto token fancies itself to be its own special digital currency but that doesn't fit into the definition of traditional finance. The SEC regularly goes after crypto tokens as securities and, frankly, they're right. In essence, crypto token creators are more than willing to promote and accept the benefits of securities to lure in investors and people from outside the crypto world, but when pressed, their ideology will make them angrily say no. They want to have their cake and eat it too," the director explained.
Extradition is bureaucratic process
According to him, Kwon's arrest in Montenegro and prosecution are meant to send a message to the global cryptocurrency industry that nobody is too big and that "everybody has to get their act together."
The collapse of Terra-Luna crashed the entire global crypto industry last year. The resulting "crypto winter" was a direct result of Kwon's actions, and his case has been closely monitored as governments around the world are weighing how to punish cases involving crypto assets and how rapidly to pursue top entrepreneurs behind such digital tokens, Spicer highlighted.
"There are a lot of major players such as Chengpeng Zhao, the CEO of Binance, who will be closely watching this because he is also in hot water. We previously witnessed the fall of Sam Bankman-Fried and FTX, which also was the result of a token price crash, FTT. And that was courtesy of Chengpeng Zhao, who had made a competitive move against him by publicly selling $500 million worth of FTT," he said.
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| The FTX logo is seen in this March 31 photo. Reuters-Yonhap |
"So price crashes, the pegging of stablecoins to currencies and the ability of crypto whales or other big players in the crypto industry will all be under serious examination. A lot of people will be chopped down to size," Spicer said. Sam Bankman-Fried was charged with fraud
Regarding questions over Kwon's next destination from Montenegro, as both the U.S. and Korea are seeking his extradition, he responded that extradition is a bureaucratic process, which means it takes time. But according to him, Korea has to get its act together in terms of cryptocurrency regulation and needs to make a point to the industry.
"That's very much in the U.S. interest. This is strictly my opinion. Because in the U.S., the SEC has been pounding crypto platforms. Many are leaving for places like South Korea, Hong Kong and Singapore. So, potential scammers down the road have to know that they cannot just get up and leave the U.S. and expect to be safe from prosecution for crypto crimes. Do Kwon is a citizen of South Korea, but the largest number of his victims are in the U.S.," the expert said.
U.S. cryptocurrency companies have been keeping a close eye on possible overseas expansion amid stiffening regulatory scrutiny. A lot of cryptocurrency investors in the U.S. are asking the authorities to clarify regulations.
But because people with the financial resources of Kwon don't just take this laying down either, Spicer expects Kwon's side to step up its efforts to block his extradition.
"Well, it's not the U.S. or South Korea without some sort of extradition. He could head to Dubai, a deal could be struck to send him from there to the U.S. He may even look to somewhere in West Africa. That is a huge crypto growing ground and it is known for weak law enforcement and a high level of corruption," he said.
