Upbit Operator Dunamu Challenges FIU’s Three-Month Suspension in Court

Dunamu, the operator of South Korea’s largest cryptocurrency exchange, Upbit, is suing the Financial Intelligence Unit (FIU) to challenge a three-month partial business suspension imposed for alleged violations of financial laws.

According to a local report from YNA, the company filed a lawsuit with the Seoul Administrative Court on February 27, seeking to overturn the penalties, including the prohibition on new customers transferring virtual assets from March 7 to June 6.

The FIU’s disciplinary actions stem from accusations that Upbit engaged in transactions with unregistered overseas virtual asset service providers and failed to meet customer verification obligations.

⚖️ @Official_Upbit faces billions in fines for over 700,000 KYC violations as South Korea tightens its crypto regulations.#Upbit #FSChttps://t.co/SZzYlT4ted

— Cryptonews.com (@cryptonews) February 18, 2025

The penalties extend beyond the business suspension, affecting CEO Lee Sirgoo with a reprimand warning and disciplinary measures for eight other employees.

Dunamu has strongly contested these sanctions, arguing that certain facts and circumstances were not sufficiently considered.

Regulatory Scrutiny and Alleged Violations

The FIU’s disciplinary measures are part of an intensified effort by South Korean authorities to enforce compliance with the Specific Financial Information Act, which governs cryptocurrency exchanges.

According to the FIU’s findings, Dunamu facilitated nearly 45,000 virtual asset transactions with 19 unregistered foreign virtual asset service providers.

Additionally, Upbit reportedly failed to adhere to customer due diligence requirements in hundreds of thousands of instances.

In response, Upbit stated that it had implemented the necessary improvements and compliance measures in accordance with the financial authorities’ requirements.

However, it believes that the severity of the penalties was unwarranted and that some factors were not fully considered during the FIU’s investigation.

Despite the suspension, Upbit’s existing customers can still trade and transact in Korean won on the exchange.

The penalties, however, create obstacles for Upbit’s expansion, including its ability to renew its virtual asset service provider (VASP) license, which is crucial for its continued operations.

Opportunity Amid Scrutiny

The legal battle between Dunamu and the FIU has wider implications for South Korea’s cryptocurrency market.

A recent report shows critics argue that South Korean regulators’ sanctions on Upbit are ineffective and may ultimately strengthen the exchange’s market dominance rather than penalize it.

According to the report, industry insiders claim the sanctions fail to prevent Upbit from acquiring new customers or conducting fiat transactions, making it unlikely that users will migrate to rival platforms.

Instead, they believe the restrictions will force new users to keep their funds within Upbit, benefiting the exchange by increasing commission-based revenue.

Some experts warn that the sanctions could create artificial price discrepancies across South Korean crypto platforms, further entrenching Upbit’s market dominance.

They argue that rather than imposing ineffective transfer restrictions, regulators should focus on issuing meaningful fines that deter misconduct without reinforcing Upbit’s monopoly.

Critics also question whether the FIU’s actions serve their intended purpose. They do not meaningfully curb Upbit’s trading activities or significantly harm its profitability.

Instead, they suggest that the measures could serve as a retention tool for Upbit, preventing users from easily moving funds elsewhere.

Upbit’s Reputation at Stake

Notably, the regulatory uncertainty also extends to Upbit’s banking partnerships.

Its current contract with Kbank expires in October, and ongoing legal disputes may affect negotiations with potential banking partners such as Hana Bank and Woori Bank.

Regulatory approval for such agreements could become more challenging if authorities view Dunamu’s legal actions as defiance against financial oversight.

In fact, according to a recent report, all these challenges have caused its stock price to plummet nearly 30% over the past three months.

🇰🇷The stock prices of Upbit, the South Korean market-leading crypto exchange, are continuing to slump, but experts have claimed the platform could soon make a strong recovery.#Upbit #SouthKoreahttps://t.co/VvDJVibsGl

— Cryptonews.com (@cryptonews) February 28, 2025

Ultimately, Dunamu’s lawsuit reflects the growing tension between cryptocurrency exchanges and regulators in South Korea.

While authorities argue that stricter compliance measures are necessary to protect investors and prevent financial crimes, the industry fears that overly harsh regulations could stifle innovation and drive exchanges to seek friendlier jurisdictions.