South Korea's tax agency wants to rewrite seizure laws for self-custodied crypto after wallets were drained by suspects holding private keys. The Supreme Court ruling that Bitcoin is property left a gap on execution.
Four researchers led by a National Tax Service investigator want South Korea to rewrite its Criminal Procedure Act so prosecutors can take control of cryptocurrency held in private wallets.
The paper, published in the journal Korean Criminological Review, argues that the current law leaves a gap big enough for a suspect to move stolen funds even after a warrant is served. The lead author is Jang Heuiwon, an investigation team leader at the National Tax Service, working with three researchers from Korea University.
At issue is self-custody. Even after police serve a warrant, a suspect who has memorized or copied their private key or seed phrase can send the coins elsewhere. The researchers warn that Article 120 of the Criminal Procedure Act, which lets investigators open locks and take "necessary" steps to execute a search-and-seizure warrant, was not built for assets with no exchange or intermediary in the middle.
The paper builds on a December 2025 Supreme Court ruling that confirmed Bitcoin held on an exchange can be seized. The court rejected 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. The ruling did not explain how to seize coins that only the suspect can access.
Moving assets from one address to another changes who controls the property. The pre-judgment preservation tool normally used to freeze assets before a verdict assumes a third party, like a bank, can receive the order. With a self-hosted wallet, there is no such party, the paper says.
The researchers suggest that warrants must specify 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 propose that the coins should not be stored in an address controlled only by investigators, as that invites theft. Instead, they suggest 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 recommends 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.
South Korean authorities have had several high-profile custody failures. 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 the Gangnam police had seized in 2021. Both losses were traced back to USB-based wallets and mishandled private keys.
The National Tax Service caused its own incident in February when it exposed a wallet recovery phrase in a public press release about tax delinquency enforcement. Unauthorized parties transferred 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.
The proposal comes from a four-author paper led by Jang Heuiwon, an investigation team leader at South Korea's National Tax Service, alongside three Korea University researchers, published in June 2026 in the Korean Criminological Review.
Because taking a suspect's hardware wallet or access credentials does not stop them from moving the coins if they still hold the private key or seed phrase, the paper argues that Article 120 of the Criminal Procedure Act and pre-judgment preservation rules were not built for assets with no exchange or intermediary in the middle.
The researchers propose transferring seized assets into an address jointly managed by the court, the investigating agency, and the asset's holder or rights holder, rather than an address controlled by investigators alone, with an option to first move coins to a court-designated temporary address if a suspect might dispose of them.
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