Coinone's KYC Catastrophe: South Korea Slaps Third-Largest Exchange With $3.5M Fine and 3-Month Timeout

South Korea's third-largest cryptocurrency exchange, Coinone, is facing a $3.5 million fine and a partial business suspension after allegedly dropping the ball on anti-money laundering compliance. Looks like someone at the KYC desk was sleeping harder than a Bitcoin holder during the 2022 crash.

The Financial Intelligence Unit under the Financial Services Commission accused Coinone of failing to verify user identities in roughly 70,000 cases, according to local media reports from The Korea Times, Chosun, and Yonhap News. That's 70,000 people basically walking through the door with a fake mustache and a note that says "trust me, I'm legit."

Regulators also claim Coinone processed over 10,000 transactions with 16 foreign exchanges that weren't registered with South Korean authorities—despite previous warnings to clean up its act. It's like your mom told you to clean your room, and you responded by inviting 16 strangers to party in it.

Adding insult to injury, the exchange allegedly marked customer verification as complete even when key information was missing, and didn't restrict transactions for customers who hadn't finished the verification process. This is the equivalent of a bouncer letting everyone in because "eh, good enough."

The FIU fined Coinone 5.2 billion won ($3.5 million) and imposed a three-month partial business suspension. New customers won't be able to deposit or withdraw funds until the ban lifts. CEO Cha Myung-hoon is also getting an official reprimand, though this is administrative rather than criminal. Nothing says "we mean business" like a strongly worded email to the CEO.

Coinone has 10 days to dispute the action before penalties become final. The clock is ticking, and it's not running on testnet.

This marks the second crackdown in a month, following Bithumb's $24 million fine and six-month partial suspension in March for similar AML failures. Bithumb's troubles included an embarrassing incident where it accidentally sent customers $42 billion in Bitcoin instead of 620,000 Korean won—prompting the Bank of Korea to push for stricter exchange controls. For those keeping score at home, that's roughly the GDP of a small country sent to random users by accident. Oops.

Cointelegraph reached out to Coinone for comment.