South Korea Proposes New Legal Framework for Seizing Self-Custodied Crypto Assets

South Korea Proposes New Legal Framework for Seizing Self-Custodied Crypto Assets

South Korean tax officials have put forward a proposal to amend the country’s Criminal Procedure Act, aiming to create a legal framework for the seizure of self-custodied digital assets. They argue that current legal provisions do not sufficiently address the complexities of wallets controlled through private keys.

Call for Legislative Changes

The proposed changes focus on the seizure of digital assets that individuals hold directly through private keys, encompassing personal wallets such as hardware wallets. Existing laws have not adequately addressed the procedures for handling these types of assets.

Officials from the National Tax Service (NTS) highlighted the need for updated regulations following a security breach that compromised seized assets. In a paper presented in the June edition of the Korea Institute of Criminology and Justice’s Criminal Policy Research journal, they outlined necessary legislative changes to manage self-custodied virtual assets during criminal investigations.

Challenges with Current Legal Framework

A significant Supreme Court ruling in 2025 recognized Bitcoin as property subject to seizure when held in exchange wallets. However, the authors of the recent proposal pointed out that this ruling does not clarify how law enforcement should approach assets stored in self-custodied wallets.

Unlike exchange-held assets, self-custodied digital assets cannot be physically seized. The researchers noted that even if authorities obtain a suspect’s private key, they may still be unable to secure the assets, as the owner could possess backups and transfer their holdings elsewhere.

Recommendations for Better Management

The researchers emphasize the need for creating specific regulations to effectively manage the seizure of self-custodied digital assets. Their recommendations include:

• Search warrants must detail the type and amount of digital assets being seized, along with verified wallet addresses and destination procedures.
• Utilizing jointly managed wallets involving courts and investigative authorities to store seized assets, aiming to minimize risks associated with theft and misuse.
• In cases where immediate transfer to a jointly managed wallet is impractical, temporary transfers to court-designated addresses should be allowed to prevent suspects from transferring funds.

The proposal also calls for clearer definitions of custody arrangements and management procedures to ensure that seized assets remain under shared oversight, rather than being held solely by investigators.

Recent Developments in Crypto Security

This initiative follows recent security concerns after a February incident where a wallet recovery phrase was accidentally exposed in an official press release, leading to unauthorized transfers of approximately $4.8 million in crypto assets. In response, the NTS is evaluating more secure custody systems and enhancing its procedures for seizing, storing, and liquidating digital assets.