South Korea’s Tax Agency Turns to Private Crypto Custodian After Security Failures - Crypto Economy

TL;DR:

• South Korea’s tax agency is seeking a private custodian for its seized cryptocurrencies following the leak of a seed phrase.
• The February 26 leak resulted in the unauthorized transfer of tokens valued at approximately $4.8 million from a government Ledger cold wallet.
• The government launched an interagency investigation after a parallel case emerged in which Gangnam police allegedly lost 22 seized BTC.

South Korea’s National Tax Service initiated the process to select a private custodian for seized crypto assets after a serious security breach compromised funds held in government custody. According to ZDNet Korea, the agency is developing selection criteria and aims to designate a provider during the first half of 2026.

The incident that triggered the process occurred on February 26, when the NTS published an official statement that included an image of a Ledger cold wallet alongside a sheet displaying the mnemonic recovery phrase without any redaction. The exposure allowed the unauthorized transfer of tokens valued at approximately $4.8 million, forcing the agency to completely overhaul its management scheme for seized digital assets.


South Korea Establishes a Selection Process Under New Standards

To conduct the custodian selection, the NTS formed a dedicated working group aimed at modernizing digital asset management. According to ZDNet Korea, the evaluation of candidates will consider factors such as security requirements, company size, and insurance coverage mandated by South Korea’s Virtual Asset User Protection Act. The same group is working on the update of operational manuals covering the full lifecycle of seized assets: from confiscation through storage to liquidation.

An NTS official acknowledged that, given how relatively new this area is, responsibilities are fragmented across different departments. The agency is preparing to establish a centralized unit dedicated exclusively to managing crypto assets.


The State’s Weakest Link

The NTS leak was not the only setback. The police department of Gangnam district in Seoul allegedly lost 22 seized BTC in a failed custody episode. Faced with the accumulation of failures, South Korea’s Deputy Prime Minister and Minister of Economy and Finance, Koo Yun-cheol, announced on March 1 an interagency investigation to review the protocols by which the government handles seized digital assets.