South Korea is considering changes to its criminal-procedure framework that could establish clearer rules for seizing cryptocurrencies held in self-custodied wallets.
The proposal was outlined in a research paper co-authored by Jang Hee-won, an investigation team leader at South Korea’s National Tax Service, and three other researchers. The paper argues that existing procedures do not adequately address the practical and legal challenges involved in seizing digital assets controlled directly through private keys or mnemonic recovery phrases.
The recommendation is not yet law. If adopted, the proposed framework could establish clearer procedures for identifying, transferring and securely storing self-custodied cryptocurrencies seized during criminal investigations, including requirements covering wallet addresses, asset types, quantities, transfer methods and custody arrangements.
Why South Korea Wants New Crypto Seizure Rules
The researchers argue that existing criminal-procedure rules do not adequately address the lawful and effective seizure of cryptocurrencies stored in self-custodied wallets. Unlike assets held by centralized exchanges, these assets are controlled directly through private keys or mnemonic recovery phrases.
Officials noted that simply obtaining a suspect’s recovery phrase or private key may not guarantee control of the assets. Multiple copies of a recovery phrase may exist, allowing a suspect or another person with access to the phrase to transfer the funds before investigators complete the seizure process.
Key Features of the Proposal
- Authorities would be able to seize cryptocurrencies stored in self-custodied wallets during criminal investigations.
- Search warrants would need to specify wallet addresses, asset types, token amounts, transfer methods and storage arrangements.
- The proposal recommends storing transferred assets under a three-party joint-management structure.
- The framework also includes custody procedures designed to improve transparency and reduce security risks.
Lessons From a Previous Security Incident
The proposal follows a security incident earlier this year involving South Korea’s National Tax Service. Authorities accidentally exposed the recovery phrase for a seized cryptocurrency wallet in a public document, after which approximately 4 million PRTG tokens, theoretically worth around $4.8 million at the time, were transferred from the wallet.
The incident highlighted weaknesses in existing procedures for securing seized digital assets and intensified scrutiny of how government agencies manage cryptocurrencies under their custody.
Balancing Enforcement and Asset Security
Under the proposed framework, courts would play a larger role in overseeing seized cryptocurrencies rather than leaving custody solely to investigative agencies. Supporters argue that joint custody could reduce operational risks while improving accountability during criminal proceedings.
The proposal also emphasizes the importance of documenting every stage of the seizure process, including wallet verification, asset transfers and long-term storage, to ensure greater legal certainty.
The proposal aligns with South Korea’s broader push to recognize crypto as a national asset. It reflects the country’s growing focus on strengthening digital asset regulation alongside blockchain adoption.
What Happens Next?
The proposal remains a legislative recommendation and has not yet been enacted into law. Any changes would require amendments to South Korea’s Criminal Procedure Act before the proposed seizure procedures could be formally implemented.
If approved, the framework could establish a more detailed statutory process for handling cryptocurrencies stored in self-custodied wallets, reflecting South Korea’s broader efforts to modernize digital asset regulation while strengthening law enforcement capabilities.
South Korea Expands Digital Asset Reforms: South Korea’s latest proposal to establish legal procedures for seizing self-custodied cryptocurrencies comes as the country prepares to implement its long-delayed virtual asset tax in January 2027. Together, the measures signal a broader effort to strengthen oversight of digital assets through clearer taxation and enforcement frameworks.
