South Korea tax agency wants seizure rules for self-custodied crypto

The researchers argued that Article 120 of the Criminal Procedure Act, which governs search and seizure warrants, was not designed for blockchain-based assets. Transferring cryptocurrencies from one wallet address to another differs from opening or securing physical property, they said. The law also lacks procedural requirements covering asset types, wallet addresses, transfer methods and custody arrangements. Existing provisions governing asset preservation before confiscation would not fully prevent suspects from disposing of self-custodied digital assets because they do not authorize transferring assets to another controlled address.

To address those gaps, the paper proposes dedicated rules for seizing self-custodied digital assets. Search warrants should specify the type and quantity of digital assets being seized, verified wallet addresses, destination addresses, transfer methods and storage procedures whenever a suspect or owner controls the relevant private keys, the authors wrote.

Rather than transferring seized assets into a wallet managed by a single investigative agency, the authors recommended using jointly managed wallets involving the courts and investigative authorities to reduce theft and misuse risks. They also proposed allowing assets to be transferred temporarily to a court-designated address if immediate transfer to a jointly managed wallet is not practical and there is a risk that the suspect could move the funds. The paper concluded that legislation should clearly define the conditions for wallet transfers, warrant requirements, custody arrangements and management procedures so seized digital assets remain under shared oversight instead of being controlled solely by investigators.

The proposal follows a security lapse at South Korea's National Tax Service in February. A wallet recovery phrase was exposed in an official press release. Unauthorized parties later transferred about $4.8 million worth of crypto assets. The agency established a task force to improve seizure, storage and liquidation procedures while evaluating more secure custody systems. The agency also began reviewing plans to hire a private crypto custody provider.

The paper's recommendations could reshape how South Korean authorities handle crypto seizures, especially as self-custody adoption grows. The proposed joint wallet model aims to address both legal gaps and operational risks that became visible after the February incident.