Victims to get back voice phishing funds routed through foreign currency accounts

Voice phishing victims whose stolen funds were routed into foreign currency accounts will be able to seek compensation as early as next month. Financial authorities are establishing common operational standards for banks covering everything from payment suspension to refund procedures, and have begun overhauling the related IT systems.

The regulatory push follows earlier reporting that exposed a blind spot in the current system: some banks cannot immediately freeze foreign currency accounts in their systems, and the absence of clear rules on exchange rate application and conversion fees has blocked victims from recovering their money.

According to data the Financial Supervisory Service provided to People Power Party lawmaker Park Sung-hoon of the National Assembly's Political Affairs Committee on Thursday, the FSS plans to establish operational standards for freezing foreign currency accounts and processing refunds in line with an amended Telecommunications Fraud Victim Compensation Act set to take effect next month. The regulator also intends to have banks reflect those standards in their IT systems so they can be applied in actual victim relief cases.

Until now, victim relief procedures effectively ground to a halt whenever voice phishing proceeds flowed into a foreign currency account. The FSS confirmed that some banks faced restrictions on freezing such accounts, pointing to gaps in both operational procedures and IT infrastructure. Even when a freeze was successfully imposed, the absence of separate refund standards — including rules on exchange rate application — made it difficult to return the funds to victims. Voice phishing organizations are believed to have exploited these systemic loopholes, using foreign currency accounts as a vehicle to conceal and launder stolen money.

Refund standards specific to foreign currency accounts are also expected to be established. The exchange rate has been the single biggest obstacle in the relief process for foreign currency accounts, unlike their won-denominated counterparts. Once stolen funds are converted into dollars or other foreign currencies, fluctuating exchange rates during bond-cancellation proceedings can alter the won-equivalent amount. There have also been no clear rules on which exchange rate to apply, or on who bears the cost of exchange gains, losses and conversion fees — leaving banks unable to convert foreign currency back into won and return it to victims on their own judgment.

In response, authorities are reviewing whether to apply the framework being developed for virtual asset victim relief to foreign currency cases as well. The amended Telecommunications Fraud Victim Compensation Act taking effect in October expands the scope of eligible assets from cash to include virtual assets, and regulators believe the standards being crafted for virtual assets could also work for foreign currencies. The FSS explained that both virtual assets and foreign currencies share a key characteristic as "non-won assets" — meaning that determining the amount of damage requires a valuation and conversion process based on market prices or exchange rates.

Authorities are also gathering input from the industry. The Korea Federation of Banks has been holding a series of task-force meetings on the issue, and the FSS has convened officials responsible for voice phishing victim relief to hold working-level discussions. "Criminal organizations are increasingly exploiting the gap where tracking and relief procedures break down once stolen funds pass through a foreign currency account, using it as a money-laundering channel," a financial industry official said. "Once a practical framework addressing the unique issues of foreign currency accounts is in place, reflecting it in IT systems should not be a major challenge."

Meanwhile, some experts argue the regulatory overhaul should not be limited to foreign currency accounts. Voice phishing organizations are diversifying the means they use to spirit away stolen funds — beyond foreign currencies to gold, gift vouchers and other instruments. "Criminal organizations tend to spread funds across multiple channels rather than concentrating on a single method," said Jeong Un-yeong, chair of the Finance and Happiness Network. "Any asset that can be converted into won should be included in the scope of victim relief, so that stolen funds can be traced all the way to the end."