South Korea’s Tax Agency Moves to Secure Seized Crypto After High-Profile Leak
A significant operational failure has prompted South Korea’s National Tax Service (NTS) to pursue a major overhaul in how it handles confiscated digital assets. The agency is accelerating plans to outsource the custody of seized cryptocurrencies to a private provider, a direct response to a serious security incident earlier this year that exposed critical vulnerabilities in its current management systems.
The catalyst for this shift was a February incident where the NTS inadvertently disclosed a crypto wallet’s seed phrase—a master recovery key—in an official press release. The published image showed a Ledger cold storage device alongside a sheet of paper with the unredacted mnemonic phrase. This error allowed unauthorized parties to drain approximately $4.8 million worth of tokens from the wallet, a sum that represented assets previously seized by the tax authority.
According to a report from ZDNet Korea, citing sources familiar with the matter, the NTS is now actively drafting criteria to select a qualified private custody firm. The agency aims to complete this selection process within the first half of 2026. The evaluation framework will reportedly prioritize robust security protocols, the financial stability and scale of the provider, and mandatory insurance coverage under South Korea’s Virtual Asset User Protection Act. This legislative requirement underscores the government’s move toward institutionalizing risk management for digital assets.
A New Task Force Takes the Helm
The custody provider selection will be spearheaded by a newly established task force within the NTS, dedicated to modernizing digital asset management. This group’s mandate extends beyond the immediate outsourcing plan. It is charged with overhauling operational manuals to cover the entire lifecycle of seized crypto—from the moment of seizure through secure storage and eventual liquidation. Furthermore, the task force will conduct comprehensive assessments and implement specialized training programs for personnel involved in these processes.
An NTS official acknowledged to ZDNet Korea that the nascent nature of cryptocurrency has led to fragmented responsibilities across various departments. In response, the agency is preparing to consolidate this expertise by forming a dedicated division to centralize and streamline all crypto-related operations, a move aimed at preventing future siloed failures.
Series of Failures Triggers Broader Government Review
The seed phrase leak was not an isolated event. It followed another reported incident where Seoul’s Gangnam police allegedly lost 22 Bitcoin (BTC) that had been seized, highlighting systemic weaknesses across law enforcement and tax agencies in safeguarding digital assets. The confluence of these events led to a higher-level intervention.
On March 1, South Korea’s Deputy Prime Minister and Minister of Economy and Finance, Koo Yun-cheol, announced a cross-agency probe. This comprehensive review will examine the protocols and practices of all government bodies involved in the handling of seized digital assets, from seizure to final disposition. The probe signals a top-down push for standardized, secure, and accountable procedures across the entire government apparatus.
The NTS’s pivot toward professional, insured private custody represents a pragmatic step to mitigate risk. By leveraging established financial security frameworks, the agency hopes to prevent a repeat of the February leak, which served as a stark lesson in the high stakes of digital asset management. The success of this initiative will depend on rigorous vendor selection and the effective integration of external custody solutions into the government’s judicial and tax enforcement workflows.
Related: South Korea opposition party pushes to scrap planned 22% crypto tax
Magazine: Metaplanet’s Japan Bitcoin bet, Bithumb ordered suspension: Asia Express
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