South Korea tightens crypto seizure rules after several mishaps

South Korea’s National Police Agency has introduced new guidelines for handling seized cryptocurrencies after multiple security lapses.

The KNPA has drafted a directive outlining compliance requirements across multiple stages of crypto seizure, storage, and management, local media outlet Asiae reported on Tuesday.

As part of the measures, law enforcement would have to follow standardized procedures for managing wallet addresses, private keys, and software wallets, including specific provisions for handling privacy-focused assets that cannot be easily stored in hardware wallets.

“In the past, seized assets were stored in warehouses. Now we must manage wallet addresses and private keys,” a police spokesperson said in an accompanying statement.

Regulatory pressures mount after major security lapses

Last month, South Korea’s finance minister Koo said the government, alongside the Financial Services Commission and the Financial Supervisory Service, would conduct a full inspection of digital assets held by public institutions and review how they are managed under enforcement processes.

Comments from the minister followed back-to-back security incidents that exposed weaknesses in custody practices across agencies.

In one case, Bitcoin seized in 2021 was lost after authorities relied on a third-party custodian without maintaining control over private keys, with the issue only coming to light following an internal probe.

Police arrested two suspects related to the theft of Bitcoin from wallets linked to seized assets, further underscoring gaps in internal controls.

A separate incident led to the Gwangju District Prosecutors’ Office losing roughly 70 billion won, about $48 million, in seized Bitcoin due to a phishing attack that exposed login credentials and enabled unauthorized transfers from a state-controlled wallet.