Author: Shenchao TechFlow
Shenchao Introduction:Centering on anti-money laundering risk control and the boundaries of penalties, the judicial showdown between South Korean trading platform Bithumb and regulators has officially opened. On October 22, the Seoul Administrative Court held its first hearing on the case in which Bithumb sued the Korea Financial Intelligence Unit (FIU).
According to an in-depth report by South Korean media Digital Asset, the core of the dispute lies in the 45,772 transfers the platform made with 18 undeclared overseas institutions over three years, as well as the regulatory penalty of suspending external withdrawals for new customers for 6 months based on this.
During the hearing, Bithumb pointed out that micro-transfers of less than 1 million Korean won are not subject to the travel rule, and that an objective regulatory gap exists. The platform cited Chainalysis data to point out that the false-positive rate reached 98%, directly accusing regulators of over-enforcement. This lawsuit will set a key judicial precedent for compliance in small-amount transfers and穿透式监管.
The Million-Won Red Line and Regulatory Blind Spots: The Compliance Dilemma of 45,000 Micro-Transfers
The trigger for the entire administrative litigation began with a compliance review by South Korea's anti-money laundering authority. The FIU alleged that, between August 2022 and April 2025, Bithumb completed a total of 45,772 transfers to 18 overseas crypto institutions that had not declared to South Korea.
Under South Korean regulations, overseas trading platforms that have not completed declaration with the FIU are regarded as non-compliant institutions, and domestic licensed entities may not conduct asset transfers with them. The FIU determined that Bithumb had internal control lapses and accordingly issued a partial business suspension penalty restricting new customers from transferring assets externally for six months.
Bithumb's defense team offered a legal rebuttal during the hearing. The core focus fell on the statutory threshold for transfer amounts. Under South Korea's Act on Reporting and Using Specified Financial Transaction Information, the statutory enforcement threshold for the travel rule is 1 million Korean won (about $720).
For transfers of 1 million Korean won or more, Bithumb had long completely excluded undeclared overseas operators through a whitelist mechanism, so within that statutory regulatory amount range, the number of non-compliant outbound transfer records was strictly zero.
The 45,772 transfers involved in the case were all micro-withdrawals of less than 1 million Korean won. During the period involved, regulations did not include micro-transfers within the scope of travel rule information exchange, the platform lacked a legal basis to require customers to provide information about the receiving exchange, and regulators had not issued clear blocking rules.
Without any authorization from higher-level law, arbitrarily withholding or requesting the privacy of small-amount transfer customers would inevitably violate personal information protection regulations. Bithumb emphasized that turning lagging institutional design and regulatory gaps into administrative punishment against compliant enterprises violates the principle of administration according to law.
On-Chain Analysis and the Cost of False Positives: 2% Suspicious Addresses Ensnare 98% Normal Transactions
The practical bottleneck of technical screening was the second heavy blow Bithumb delivered in court. In micro-withdrawal scenarios, the platform proactively introduced an application programming interface provided by global blockchain security analysis firm Chainalysis for security filtering.
On-chain data revealed a harsh technical reality: among all independent addresses whose exact ownership could not be confirmed externally, only about 2% were later confirmed by the FIU as deposit addresses of undeclared overseas operators.
In a decentralized public chain environment, there is a physical blind spot in accurately identifying in advance the commercial ownership of a single unlabeled on-chain address. If Bithumb blocked all addresses whose institutional labels could not be confirmed, the remaining 98% of legitimate normal transactions would be innocently affected.
A false-positive cost as high as 98% is unbearable for a licensed commercial platform serving millions of investors. Unreasonably blocking users' fund transfers would not only disrupt normal clearing and settlement order, but also trigger large-scale user default liability and damages claims.
Defense lawyers emphasized that requiring exchanges to bear a 100%穿透识别 obligation that even cutting-edge analysis firms cannot achieve in advance is tantamount to imposing fault liability. The probabilistic limitations of technical tools cannot be used by administrative agencies as a basis for retrospectively inferring and attributing liability to enterprises.
Excess Administrative Discretion and Survival Crisis: The Proportionality Principle Contest Over the Six-Month Business Suspension Penalty
The courtroom confrontation directly touched on the core administrative law principles of proportionality and statutory limits of authorization. Bithumb pointed out that the regulator's decision to suspend external withdrawals for new customers for six months far exceeded the necessary limit of punishment in commercial substance.
In the spot market, where fund flows are sensitive, prohibiting new users from withdrawing externally for half a year is essentially equivalent to depriving the platform of its right to survive by attracting and expanding new customers.
This penalty will exacerbate the unbalanced duopoly competition among South Korean domestic exchanges, cause market share to flow to competitors, and even indirectly encourage illicit funds to shift to underground off-exchange channels that lack tracking.
At the level of legal authorization, Bithumb's team raised legitimacy doubts about the enforcement decree on which the penalty was based. The defense pointed out that the enforcement decree details formulated by the Financial Services Commission are suspected of exceeding the authorization boundary explicitly granted by the parent law, the Act on Reporting and Using Specified Financial Transaction Information.
The standards used by the FIU in determining undeclared overseas operators lack sufficient legal transparency and ex ante predictability, and there is no reasonable substantive connection between the administrative prohibition and the anti-money laundering prevention purpose it claims.
After hearing the preliminary evidence from both sides, the panel of the Seoul Administrative Court announced an adjournment and will conduct further cross-examination on the technical attribution of the transfers involved and administrative discretion. This lawsuit is bound to have a profound impact on the global crypto regulatory community in defining the enforcement boundaries of the travel rule and the prudential obligations of exchanges.
