South Korean tax officials have proposed changes to the country’s criminal laws that would give investigators a clear legal process for seizing cryptocurrencies held in self-custodied wallets during criminal investigations.
The proposal, published in the June edition of the Criminal Policy Research journal by four officials from South Korea’s National Tax Service (NTS), argues that existing laws were written for physical assets and do not properly address cryptocurrencies controlled through private keys.
The suggested amendments would create rules for handling self-custodied digital assets, including hardware wallets, while introducing court-supervised custody to reduce security risks.
Why do officials want new rules for self-custodied crypto?
According to the paper, current laws leave major gaps when it comes to cryptocurrencies stored outside centralized exchanges.
The officials pointed to a 2025 South Korean Supreme Court ruling that confirmed Bitcoin held on a cryptocurrency exchange can be treated as property and legally seized during criminal investigations. However, they said the decision did not explain how authorities should deal with assets stored in self-custodied wallets.
Unlike exchange-held assets, cryptocurrencies stored in personal wallets remain under the owner’s control through private keys. Even if investigators obtain a private key, the owner may still have another copy and could transfer the funds before authorities secure them.
The researchers said existing provisions under South Korea’s Criminal Procedure Act were not designed for blockchain assets and do not provide clear procedures for wallet transfers, custody, or digital asset management.
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How could the proposal affect crypto users?
If adopted, the proposal would mark one of South Korea’s clearest attempts to extend law enforcement powers beyond crypto exchanges and into self-custodied wallets. That could change how investors view self-custody, which many crypto users consider one of the industry’s core principles because it allows individuals to control their assets without relying on third parties.
The proposal is also likely to renew debate over the balance between law enforcement and financial privacy. Supporters are expected to argue that clear legal procedures would help investigators recover criminal proceeds that are increasingly moved into self-custodied wallets.
Others in the crypto industry may see the move as another step toward tighter government oversight of digital assets, even though the proposal targets assets linked to criminal investigations rather than ordinary wallet holders. South Korea already has one of the world’s most active crypto markets, making any change to digital asset enforcement closely watched by investors and the entire industry.
Security concerns add urgency to the proposal
The proposed reforms follow a security incident involving South Korea’s National Tax Service earlier this year.
In February, the agency accidentally exposed a crypto wallet recovery phrase in an official press release. Unauthorized parties later accessed the wallet and transferred approximately $4.8 million worth of digital assets.
Following the breach, the NTS launched a task force to strengthen its procedures for seizing, storing, and selling confiscated cryptocurrencies. The agency has also been reviewing plans to work with a private crypto custody provider as it looks to improve the security of seized digital assets. Meanwhile, Korea Digital Asset Custody (KDAC) was selected by the NTS in May to store seized cryptocurrency, marking the first time a private company will handle government-held digital assets in South Korea.
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