South Korea Finance Minister Orders Crypto Custody Reform Review

TLDR

• Korea to review digital asset custody across public agencies

• Police lost 22 BTC after third party held private keys

• Tax agency leak exposed seed phrase and led to token theft

• Reforms to focus on stronger crypto security procedures

South Korea has launched a review of how public agencies manage seized digital assets. The move follows custody failures that led to lost Bitcoin and stolen tokens. The finance minister pledged urgent reforms to prevent further security lapses.

Deputy Prime Minister and Minister of Economy and Finance Koo Yun-cheol said the government will inspect current practices. He stated that authorities will strengthen controls over digital assets obtained through seizures. The review will involve financial regulators and enforcement agencies.

Korea Government Launches Review of Digital Asset Controls

Koo said agencies such as the Financial Services Commission and the Financial Supervisory Service will join the review. The inspection will assess how seized crypto is stored and managed. It will also examine compliance with existing custody guidelines.

He said in a public statement that the government will “inspect the current status and management practices of digital assets.” He added that measures will be implemented to strengthen security and prevent recurrence. The ministry did not disclose specific safeguards under consideration.

Koo clarified that the state does not hold crypto as investment assets. He said digital assets in government hands result from enforcement actions. These include seizures linked to unpaid taxes and criminal investigations.

Police Lost Access to Seized Bitcoin

The review follows a case in Seoul’s Gangnam district involving 22 BTC. The Bitcoin was worth about $1.4 million at the time of the incident. Police lost access after relying on a third party to manage the seized funds.

Officers did not retain control of the private keys tied to the wallet. As a result, access to the crypto was lost in 2022. Authorities have arrested two suspects, while prosecutors continue investigating possible bribery linked to the case.

The incident raised concerns about operational standards in handling seized crypto. It also exposed gaps in technical oversight within law enforcement units. The case has intensified calls for clearer custody procedures across agencies.

Tax Service Seed Phrase Leak Triggers Token Theft

Another incident involved South Korea’s National Tax Service. The agency had seized ₩8.1 billion worth of assets from tax delinquents. It later published images of the haul for public information.

The photos inadvertently revealed a seed phrase linked to a crypto wallet. Shortly after publication, funds were drained from the wallet. The stolen tokens, known as Pre-Retogeum or PRTG, were reportedly valued at about $4.8 million.

The Tax Service acknowledged the mistake and issued an apology. It said it has revised its internal manual for seizing and storing digital assets. The agency also pledged to train staff on updated procedures to prevent credential exposure.

Growing Scrutiny of Public Sector Crypto Oversight

The custody failures have increased scrutiny of South Korea’s public sector crypto management. They follow criticism directed at regulators over internal control lapses at crypto exchange Bithumb. Lawmakers questioned oversight standards after system flaws went undetected.

The finance minister said reforms will address technical and procedural gaps. The government aims to ensure that private keys and access credentials remain secured. Authorities also intend to improve coordination between enforcement bodies and financial regulators.

The National Police Agency has been asked to trace the stolen tokens. Blockchain records may assist investigators in identifying suspects. Meanwhile, the government’s review marks a broader effort to tighten digital asset security within public institutions.

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