Tax officials urge law change to seize self-custodied crypto in Korea

Four researchers, led by a National Tax Service investigator, are pushing for South Korea to rewrite its Criminal Procedure Act so prosecutors can actually take control of cryptocurrency that suspects hold in private wallets. 

The current law that South Korean tax officials are seeking to change leaves a gap big enough for a suspect to move stolen funds even after a warrant is served.

What is South Korea’s National Tax Service proposing? 

A paper written by four researchers, who were led by a National Tax Service investigation team leader named Jang Heuiwon, has been published in the journal Korean Criminological Review (형사정책연구, vol. 37, no. 2). 

The paper, titled “Limits of Seizure Enforcement for Self-Custodied Virtual Assets and a Legislative Proposal,” argues that the current Criminal Procedure Act does not give police the power to properly seize crypto stored in self-custody wallets and urges that the law be rewritten. 

The researchers warn that even after police serve a warrant, a suspect who has memorized or copied their private key or seed phrase can send the coins elsewhere. 

This proposal builds on a December 2025 Supreme Court ruling, in which a court confirmed that Bitcoin held on an exchange can be seized, rejecting a defendant who claimed his 55.6 Bitcoin (worth about $4.1 million at the time) was “mere data” and not property.

The court ruled that Bitcoin has independent manageability, transferability, and economic value, but the ruling did not explain how to seize coins that only the suspect can access. 

Currently, investigators rely on Article 120 of the Criminal Procedure Act that lets them open locks and take “necessary” steps to execute a search-and-seizure warrant, but this law is a bad match-up for crypto because moving assets from one address to another changes who controls the property. 

The paper also says that the tool normally used to freeze assets before a verdict, called the pre-judgment preservation, is ineffective because it assumes that a third party, like a bank, can receive the order. With a self-hosted wallet, there is no such party. 

What will the changes to the law be?

The researchers suggest that warrants must be specific. A warrant would have to spell out the type and amount of the asset, the confirmed source address, the destination address, the transfer method, and how the coins are stored afterward. 

After digital assets are seized, the researchers suggest that the coins should not be stored in an address controlled only by investigators, as it will invite theft. 

Instead, the researchers propose a shared address jointly managed by the court, the investigating agency, and the person the assets were taken from. If the suspect looks likely to dump the holdings, the paper suggests a first move into a temporary address the court designates. 

The Supreme Court has separately published proposed amendments to the Rules of Civil Execution covering how courts freeze, transfer, and liquidate digital assets to satisfy debts. Those rules also rely on exchanges to hand assets over and get more complicated once self-custody wallets enter the picture.

How will Korean authorities hold seized crypto?

In January, about 320 Bitcoin (worth roughly $48 million at the time) went missing from the Gwangju District Prosecutors’ Office. In February, another 22 Bitcoin (worth around $1.5 million) vanished from assets Gangnam police had seized in 2021. Both losses were traced back to USB-based wallets and mishandled private keys.

The National Tax Service caused a major incident in February when it exposed a wallet recovery phrase in a public press release about tax delinquency enforcement, leading to unauthorized parties transferring about $4.8 million worth of crypto assets. 

These failures pushed the National Police Agency to hire Dunamu as a professional custodian. The job is to store the agency’s confiscated coins, covering an estimated 54.5 billion won in crypto seized over five years. 

The National Tax Service also started building its own solutions. In May, the agency began developing an AI-powered system costing approximately $2.2 million that will integrate exchange transaction records with blockchain data to detect suspicious activities like money laundering and offshore tax evasion. It will cover non-custodial wallets and involve major exchanges like Upbit and Bithumb. Completion is expected by the end of 2026.

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