South Korea Proposes New Laws to Seize Self-Custodied Crypto After $4.8M Hack

South Korea’s tax investigators are pushing for new laws to let authorities seize crypto held in personal wallets — a legal gap exposed by the rise of self-custody. Four officials from the National Tax Service (NTS), including investigation team leader Jang Hee-won, published a paper in the June issue of the Korea Institute of Criminology and Justice’s Criminal Policy Research journal arguing that the current Criminal Procedure Act doesn’t adequately address assets controlled via private keys. Their focus: digital assets kept directly by individuals in private wallets — including hardware wallets — rather than coins held by exchanges or third-party custodians. Why existing law falls short - A 2025 Supreme Court decision confirmed investigators can lawfully seize Bitcoin held in an exchange wallet, but it didn’t say how to handle assets stored in self-custodied wallets. - Unlike exchange assets, self-custodied crypto cannot be physically seized. Even if investigators obtain a private key, an owner may have duplicate copies and can still move funds. - The authors say Article 120 of the Criminal Procedure Act — which governs search-and-seizure — was written for physical property and lacks rules for blockchain specifics such as asset types, wallet addresses, transfer mechanisms and custody procedures. - Current provisions meant to preserve assets before confiscation also don’t authorize transfers to a secure address controlled by authorities, leaving suspects able to dispose of self-custodied holdings. What the paper proposes To close the gap, the researchers recommend a tailored legal framework for seizing self-custodied digital assets: - Search warrants should list the asset type and quantity, verified wallet addresses, designated destination addresses, transfer methods and storage procedures whenever private keys are involved. - Rather than giving a single investigative agency unilateral control, seized crypto should be moved into jointly managed wallets overseen by courts and investigators to reduce theft and misuse risks. - If immediate transfer to a jointly managed wallet isn’t feasible but funds are at risk, assets could be sent temporarily to a court-designated address. - Legislation should clearly define the conditions for wallet transfers, warrant standards, custody arrangements and management procedures so seized assets remain under shared oversight. Context: a security lapse and reform momentum The paper arrives months after the NTS began exploring hiring a private crypto custody provider. In February, the agency accidentally published a wallet recovery phrase in a press release; attackers later stole about $4.8 million in crypto. That incident prompted the NTS to create a task force to overhaul seizure, storage and liquidation processes and to assess more secure custody options. Why it matters If lawmakers adopt these recommendations, South Korea could create a blueprint for how courts and law enforcement handle self-custodied crypto — balancing investigative needs, asset security and legal safeguards. The proposals aim to translate traditional search-and-seizure principles into the unique mechanics of blockchain custody, while reducing the risk that seized crypto becomes vulnerable to theft or improper control.