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South Korea’s FIU Slaps Crypto Lender Delio with $1.4M Fine and Halts Operations for 3 Months

source-logo  blockchainreporter.net 01 September 2023 10:22, UTC

According to a local news media outlet, South Korea’s Financial Intelligence Unit (FIU) has imposed a staggering $1.4 million fine (1.9 billion won) on Delio, a prominent crypto company, along with a 3-month suspension of its business operations.

1.9 Billion Won Fine And 3-month Business Suspension For Delio

On the first of the month, South Korea’s Financial Services Commission’s Financial Intelligence Unit (FIU) publicly announced a series of steep penalties against Delio, a well-known cryptocurrency company. These penalties include a 3-month suspension of all business activities and a hefty fine amounting to 1.896 billion won (approximately $1.4 million). Alongside these financial and operational sanctions, the FIU also recommended the dismissal of one of Delio’s top executives.

The sanctions come after the FIU conducted a thorough investigation into Delio’s compliance with South Korean financial regulations. According to the public notice, Delio was found to have violated multiple obligations under the Act on the Reporting and Use of Specific Financial Transaction Information.

Delio breached its obligation to avoid transactions with cryptocurrency businesses that have not reported their activities to financial authorities. The company neglected to properly assess the money laundering risks associated with new products and services before rolling them out, another significant regulatory violation. The FIU’s investigation found lapses in Delio’s “Know Your Customer” (KYC) procedures, which are designed to confirm the identity of individuals and entities engaged in financial transactions.

Lastly, Delio failed to enact appropriate measures to restrict transactions that fell under the scope of the Act on the Reporting and Use of Specific Financial Transaction Information, potentially leaving room for illicit financial activities.

The Financial Intelligence Unit (FIU) stated that Delio facilitated the transfer of customers’ virtual assets to unreported foreign virtual asset operators a total of 171 times.

Delio’s Sister Lending Firm, Haru Invest, Also Under Scrutiny

Delio, registered and rectified with the FIU as a Virtual Asset Service Provider (VASP), offered a virtual asset deposit service boasting an annual interest rate of up to 10.7%. However, in June, they abruptly halted customer withdrawals. This action prompted the FIU to initiate an inspection and the prosecution to begin an investigation into the company.

The inquiry also raises concerns about Delio’s affiliate company, Haru Invest, which halted both withdrawals and deposits on June 13, citing complications with a “consignment operator.”

The suspension is reportedly linked to deceptive management reports supplied by its operating associate, B&S Holdings (formerly known as Aventus). Both criminal and civil legal proceedings are currently in progress.

Although Delio initially stated plans to recommence withdrawals on June 17, the company did not specify a timeline for fully restoring all platform features. Despite the partial resumption of withdrawal services for certain staking options on June 27, the Financial Services Commission (FSC) persisted in its investigation of Delio.

Subsequently, the regulatory authority initiated a lawsuit against the firm, accusing it of fraud, embezzlement, and breach of trust in relation to its “one-sided decision” to freeze user deposits and withdrawals on June 14. Moreover, a travel ban was imposed on Delio’s CEO, Jeong Sang-ho, as well as other key personnel, restricting them from leaving the country.

Founded in 2018, Delio has emerged as a key figure in South Korea’s cryptocurrency lending landscape, providing services in custody, lending, and staking. The company manages substantial assets, including an estimated $1 billion in Bitcoin, $200 million in Ether, and roughly $8.1 billion in various altcoins.