Crypto Fraud and Breach of Trust in Korea — Criminal Law Guide for Foreign Investors

When a crypto project collapses or a digital asset exchange freezes customer funds, foreign investors often assume they can turn to Korea’s criminal system to recover losses. But filing the right charges in Korea—and understanding how prosecutors will investigate cryptocurrency crimes—requires navigating a legal framework that treats virtual assets differently from traditional property. This guide walks you through fraud (사기죄) and breach of trust (배임죄) under Korean criminal law, explains why filing the wrong charge is a common mistake, and shows how Korea’s police and prosecutors actually handle crypto investigations.

Why Korean Criminal Law Treats Crypto Differently: Property vs. Property Interest

Korean criminal law distinguishes sharply between two concepts: tangible property (유체물) and property interest (재산상 이익). This distinction is critical for crypto crime victims.

The Korean Supreme Court has consistently held that cryptocurrency does not qualify as “tangible property” under the Criminal Act. Virtual assets lack physical form and, in the court’s view, do not meet the statutory definition of movable property that embezzlement (횡령죄, Article 355) is designed to protect. Instead, the Supreme Court treats cryptocurrency as a property interest—a financial right or benefit that can be gained or lost, but not a “thing” in the legal sense.

This seemingly technical distinction has enormous practical consequences. It determines which criminal statutes apply to your case and which ones will fail. Understanding this framework prevents you from filing charges that prosecutors will dismiss before investigation even begins.

Fraud (詐欺罪, Article 347): The First Line of Attack

Elements of Fraud Under Article 347

Article 347 of the Criminal Act punishes anyone who obtains property or property interest through deception or fraudulent manipulation. For crypto cases, fraud requires four elements:

Deceptive conduct (기망행위): False statements, misrepresentation, or concealment of material facts about the asset, project, or platform.
Victim’s error (착오): The victim must rely on the fraud and be induced into error about a material fact.
Disposition of property (재산처분): The victim transfers funds, crypto, or other value as a result.
Actual loss (손해): The victim suffers direct economic harm.

Crucially, Article 347 applies to obtaining “property or property interest” (재산상 이익). Because crypto is treated as a property interest, not tangible property, fraud charges are always available for crypto crimes—even though embezzlement is not.

Common Crypto Fraud Scenarios in Korea

Exit scams: A project team publicly promises token release, ecosystem development, and exchange listings. Developers know from inception that no product will be delivered and no funds will be used for development. Investors send millions of dollars in stablecoins or fiat currency. The team disappears, empty wallets, and blocks communication. This is classic fraud under Article 347: the project promised features it never intended to build, investors relied on these promises, and investors lost money.

Fake exchanges: A platform mimics the interface and branding of a legitimate exchange (e.g., Binance, Upbit). Users deposit funds believing they are trading on the real exchange. The scammers drain wallets; user accounts show balances that never existed. Article 347 applies: false identity + victim reliance + loss of property interest (user deposits).

Pump-and-dump schemes: Organizers issue a low-volume token with false claims about partnerships, technology, or use cases. They publicly promote the token, driving retail investment. Once price rises, insiders dump holdings, price collapses, and retail investors lose 90%+ of capital. This can constitute fraud if the project’s founders made affirmative false statements about partnerships or technology that were material to the investment decision.

Computer-assisted fraud (Article 347-2): If the fraud involves use of computers, networks, or data manipulation (e.g., fake wallet confirmations, forged transaction records, database manipulation on an exchange), the offense can be charged under Article 347-2, which carries enhanced penalties (up to 10 years).

Breach of Trust (背任罪, Articles 355(2) & 356): When the Defendant Has a Duty

Elements of Breach of Trust

Breach of trust applies when a person entrusted with managing another’s affairs or property intentionally breaches that duty for personal gain or to cause loss. Articles 355(2) and 356 define the crime:

Fiduciary relationship: The defendant must be managing another’s business or property. This includes exchange operators managing customer funds, project developers managing investor capital, or custodians holding digital assets.
Breach of duty: The defendant acts contrary to the fiduciary’s obligation—by misappropriating funds, transferring customer assets without authorization, or diverting project funds to personal use.
Resulting loss: Another party suffers economic harm as a result.
Intent: The defendant must act knowingly and with intent to gain personal advantage or cause loss.

Article 355(2) applies to ordinary persons in a fiduciary capacity. Article 356 applies to persons in a position of “official duty” (업무상 배임) and carries enhanced penalties (up to 10 years). For crypto, “official duty” typically means executives or employees of a licensed exchange or VASP.

Common Breach of Trust Scenarios in Crypto

Exchange operator misappropriation: A CEO or compliance officer at a licensed VASP, entrusted with segregated customer funds in wallets, transfers those funds to personal accounts or uses them for unauthorized trading. The operator’s position as manager of customer assets creates the fiduciary duty. When the operator misappropriates, the crime is breach of trust under Article 356 (with official-duty enhancement).

Project developer fund diversion: Investors send capital into a project’s development wallet in tranches, expecting funds to be used for hiring, infrastructure, and product development. Instead, the lead developer transfers 70% of the initial funds to a private wallet and disappears. No fraud occurs at the time of investment (investors were told the truth about project plans). But the developer, having accepted management of investor capital with a duty to use it for stated purposes, breached that trust by diverting funds. This is Article 355(2) breach of trust.

Staking or yield-farming platform collapse: A platform accepts user deposits into “yield farms” with a stated yield of 15% annually. The operator is entrusted with segregating and managing these funds in smart contracts or external wallets. Instead, the operator uses funds for personal trading or sends them to an accomplice. When the platform becomes insolvent and users cannot withdraw, the operator has breached the fiduciary duty. Charge: Article 355(2).

Fraud vs. Breach of Trust: Key Difference

In fraud, the defendant deceives the victim into the transaction. In breach of trust, the victim knowingly enters the relationship and trusts the defendant with management—but the defendant secretly acts against that trust. Exit scams are fraud (false promises about project development). Exchange operators who freeze customer withdrawal requests and steal funds are breaching trust (operator was already trusted with custody; the breach is the misappropriation). A project developer who takes investor capital but fails to deliver product in good faith is not a criminal—but one who never intended to try is committing fraud.

The Embezzlement Trap: Why Filing the Wrong Charge Backfires

A common—and costly—mistake is filing embezzlement charges under Article 355(1): “A public official or other person entrusted with the safekeeping of property of another shall not embezzle or convert such property.”

Why Embezzlement Fails for Crypto

Article 355(1) embezzlement requires that the defendant was “entrusted with the safekeeping of property” (재물)—tangible property. But the Korean Supreme Court has ruled that cryptocurrency does not qualify as tangible property. Therefore, embezzlement charges for crypto crimes are almost always dismissed as legally impossible. Prosecutors may reject the charge outright, or police may investigate and then send the case to prosecutors, who will refuse to prosecute.

In one illustrative case, a defendant managing customer funds at an unlicensed crypto lending platform was initially charged with embezzlement. The court dismissed the embezzlement count, finding that cryptocurrency assets do not constitute “property” within the meaning of Article 355(1). The defendant was instead convicted under Article 356 breach of trust (official-duty capacity as platform operator) for the same conduct.

The Strategic Error

When foreign victims file complaints against exchange operators or developers, many include embezzlement (횡령죄) alongside fraud or breach of trust charges. Prosecutors see the embezzlement count, recognize it will fail, and sometimes use that failure to undermine the credibility of the entire complaint. They may reason: “If the complainant’s lawyer does not understand that crypto is not tangible property, how much legal sophistication does the rest of the complaint have?” This creates unnecessary barriers to investigating the viable charges.

Correct Charge Selection

If the defendant held a fiduciary position (exchange operator, project manager, custodian), charge breach of trust (Article 355(2) or 356). If the defendant deceived the victim into the transaction (false promises, fake platform identity, misrepresented partnerships), charge fraud (Article 347 or 347-2). Leave embezzlement out. This focuses the complaint and avoids signaling legal inexperience to investigators.

Filing a Criminal Complaint in Korea: Procedure, Evidence, and the Investigator Education Gap

Complaint vs. Report: What’s the Difference?

In Korean criminal procedure, there are two ways to initiate investigation:

告訴 (Complaint/Go-so): The victim (or their legal representative) files a formal complaint with police, prosecutors, or both, requesting that the state prosecute the crime. For non-public crimes (e.g., fraud, breach of trust), the victim’s complaint is often required to trigger investigation. The complaint must name the defendant(s), describe the crime with specificity, and provide supporting evidence.

告發 (Report/Go-bal): A third party (anyone other than the victim) reports the crime to authorities. Reports do not require the victim’s involvement and can be filed by competitors, journalists, or regulatory agencies. Both complaints and reports trigger investigation for non-private crimes like fraud or breach of trust.

Investigation Pathways: Police vs. Prosecutors

Police (경찰): For most crypto crimes, the first point of contact is the Metropolitan Police Agency’s Cyber Investigation Division (경찰청 사이버수사대) or regional police. Police conduct initial investigation, interview witnesses, collect evidence, and prepare a case file. However, police officers often lack deep knowledge of blockchain technology, smart contract code, on-chain transaction tracing, or the legal framework of virtual assets. This creates a critical gap.

At Cha & Kwon, we have found that educating investigators on the technical and legal specifics of crypto assets is often as important as the legal arguments themselves. A well-drafted complaint must therefore include: clear explanation of how the crypto platform or project works; identification of on-chain wallet addresses involved; transaction hashes showing fund flow; expert analysis of smart contract code if relevant; and mapping of how the defendant’s actions satisfy the elements of fraud or breach of trust. Without this “translator layer,” investigators may struggle to understand the case and may not pursue it with urgency.

Prosecutors (검찰): Complex crypto cases are often handled by the Prosecutor’s Office Special Crimes Division (특수부) or Financial and Taxation Investigation Division (금융조세부). If police investigation stalls or police decline to prosecute (불송치), the victim can appeal to prosecutors and request re-investigation. Prosecutors have greater investigative power (including subpoena authority and international mutual legal assistance) and deeper financial crime expertise. However, prosecutors will only open a case if the complaint shows sufficient probable cause and is legally coherent.

Timeline and Realistic Expectations

Criminal investigation of a medium-complexity crypto fraud case in Korea typically unfolds over 6–18 months. Initial police investigation: 2–4 months. Police decision to send case to prosecutors or decline: 3–6 months. Prosecutor review and decision to indict: 2–6 months. Trial: 6–24 months depending on case complexity and defendant appeals. For foreign victims, this timeline is especially important because witnesses may be difficult to locate or interview, and international bank records may require formal mutual legal assistance requests between governments.

What Evidence Matters

Korean prosecutors in crypto cases place heavy weight on:

On-chain evidence: Transaction hashes, wallet addresses, token transfer records, and smart contract code. Blockchain records are immutable and publicly verifiable, and prosecutors understand their evidentiary value.
Know-Your-Customer (KYC) records: If the defendant used a licensed exchange to move or sell the stolen funds, exchange KYC records (which identify the person who opened the account) link the defendant to the crime.
Communications: Emails, Discord messages, Telegram chats, and social media posts in which the defendant made false statements (about project plans, partnerships, or platform features) or discussed intent to defraud. Korean prosecutors value written communications as direct evidence of deception or intent.
Expert analysis: If the case involves smart contract code, yield calculations, or other technical matters, prosecutor-appointed experts can analyze and testify. Foreign victims should prepare technical reports in advance.
Financial records: Bank statements showing the victim’s transfer of funds and the defendant’s receipt. For fiat purchases of crypto, bank records are critical to showing the loss.

The Role of the Victim’s Attorney

In Korean criminal procedure, the victim’s attorney plays several roles:

Drafting the complaint with precise legal analysis, detailed fact narrative, and coherent charge selection.
Submitting supplementary evidence and expert reports to police and prosecutors during investigation.
Requesting specific investigative steps (e.g., “please subpoena Exchange X for the defendant’s trading history”).
Attending defendant interviews as the victim’s representative (if the victim is not present).
Appealing police non-prosecution decisions to prosecutors.
In some cases, pursuing a “private prosecution” (자수소추) if the prosecutor declines to indict—though this is resource-intensive and requires victim participation in trial.

For foreign investors, appointing a Korean attorney familiar with both crypto law and criminal procedure is essential. Complaints drafted by non-specialists often omit technical detail or mis-state the legal elements, and Korean investigators may not catch or correct these errors until months into a stalled investigation.

Cha & Kwon’s Approach to Crypto Criminal Cases

At Cha & Kwon Law Offices, we advise foreign and domestic victims of crypto fraud and breach of trust on complaint strategy, evidence gathering, and negotiation with Korean investigators. We prepare complaints with technical detail and legal precision—translating blockchain concepts for police officers and prosecutors who may see their first crypto case. We work with expert witnesses to analyze on-chain transactions, reconstruct fund flows, and bridge the knowledge gap between blockchain technology and criminal procedure. We also advise on settlement and civil recovery options, which are often faster and more certain than criminal prosecution.

Related reading: Crypto Trading Bots in Korea: Legal Risks Around VASP Registration and Market Manipulation — market manipulation charges often accompany criminal fraud cases.

Related reading: Is Crypto Investment Advisory Legal in Korea Without a License? — unlicensed advisory activity may give rise to both criminal and regulatory liability.

Related reading: Korea Crypto Law: An Overview — our guide to the Korean regulatory framework for virtual assets.

Related reading: When a Korean Exchange Delists Your Token: Legal Options and How to Prepare — what token issuers can do when a Korean exchange announces delisting, and how to prepare before it happens.

Cha & Kwon Law Offices advises virtual asset businesses, fintech companies, and foreign investors on Korean regulatory compliance and criminal procedure. For consultation, contact us at contact@chakwon.com or visit chakwon.com.

This article provides general legal information and does not constitute legal advice for your specific situation. Please consult qualified Korean legal counsel regarding your particular circumstances.