South Korea weighs new legal framework for seizing self custodied crypto

South Korean tax officials have proposed amendments to the country’s Criminal Procedure Act to establish a legal framework for seizing self-custodied digital assets, arguing that existing rules do not adequately cover wallets controlled through private keys.

According to Digital Asset, four officials from South Korea’s National Tax Service, including investigation team leader Jang Hee-won, published a paper in the June edition of the Korea Institute of Criminology and Justice’s Criminal Policy Research journal outlining legislative changes for handling self-custodied virtual assets during criminal investigations.

The proposal focuses on digital assets held directly by individuals through private keys rather than those stored with exchanges or other third-party custodians. Personal wallets, including hardware wallets, fall into this category.

Existing law leaves gaps for self-custodied assets

The paper points to a 2025 South Korean Supreme Court ruling that found investigators acted lawfully when seizing Bitcoin held in an exchange wallet. While the authors said the decision confirmed that Bitcoin could be treated as property subject to seizure during criminal investigations, they argued it did not establish how authorities should seize assets stored in self-custodied wallets.

Unlike exchange-held assets, self-custodied digital assets cannot be physically possessed. The paper said that even if investigators seize a suspect’s private key or other access credentials, the owner could still retain another copy and transfer the assets elsewhere.

The researchers also argued that Article 120 of South Korea’s Criminal Procedure Act, which governs the execution of search and seizure warrants, was not designed for blockchain-based assets. They said transferring cryptocurrencies from one wallet address to another differs from opening or securing physical property, while the law also lacks procedural requirements covering asset types, wallet addresses, transfer methods and custody arrangements.

The paper further stated that existing provisions governing asset preservation before confiscation would not fully prevent suspects from disposing of self-custodied digital assets because they do not authorize transferring assets to another controlled address.

Paper proposes court-supervised custody process

To address those issues, the researchers proposed creating dedicated rules covering the seizure of self-custodied digital assets. According to the paper, search warrants should specify the type and quantity of digital assets being seized, verified wallet addresses, destination addresses, transfer methods, and storage procedures whenever a suspect or owner controls the relevant private keys.

Rather than transferring seized assets into a wallet managed by a single investigative agency, the authors recommended using jointly managed wallets involving the courts and investigative authorities to reduce theft and misuse risks. They also proposed allowing assets to be transferred temporarily to a court-designated address if immediate transfer to a jointly managed wallet is not practical and there is a risk that the suspect could move the funds.

The paper concluded that legislation should clearly define the conditions for wallet transfers, warrant requirements, custody arrangements and management procedures so seized digital assets remain under shared oversight instead of being controlled solely by investigators.

The proposal comes months after South Korea’s National Tax Service began reviewing plans to hire a private crypto custody provider following a February security lapse that exposed a wallet recovery phrase in an official press release. Unauthorized parties later transferred about $4.8 million worth of crypto assets, prompting the agency to establish a task force to improve seizure, storage and liquidation procedures while evaluating more secure custody systems.