South Korea's National Tax Service (NTS) is scrambling to overhaul its seized crypto asset management after a catastrophic operational blunder. On February 26, the agency inadvertently published a cryptocurrency wallet's recovery phrase in a press release related to tax evasion enforcement. The leak led to two separate wallet breaches, forcing the NTS to confront a stark reality: handling crypto is not the same as storing cash in a vault.
How a Press Release Sparked a Security Crisis
According to a report from Zdnet Korea citing unnamed sources, the NTS included an image containing the mnemonic phrase in its public disclosure. Hackers quickly exploited the exposed phrase to drain the wallet's assets. The incident not only embarrassed the agency but also highlighted critical gaps in how government bodies manage novel digital assets.
Following the breach, the NTS launched internal investigations and began re-evaluating its custody procedures. Previously, seized crypto was stored internally by NTS staff lacking specialized crypto custody expertise. Officials now admit that digital asset storage demands professional-grade security infrastructure fundamentally different from traditional assets.
New Strategy: Outsourcing to Private Custodians
To address security risks, the NTS plans to select a qualified private custody provider within the first half of 2026. Candidates must meet stringent criteria under South Korea's Virtual Asset User Protection Act, including security standards, company size, and insurance coverage. An industry insider noted: "Not every custodian will be entrusted with this, especially given the sensitivity of state-seized assets and the reputational stakes involved."
The NTS has established a dedicated Task Force for Virtual Asset Management System Improvement, launched March 11 under Ko Young-il. The task force will overhaul the entire lifecycle of seized assets—from confiscation and storage to eventual realization—and conduct external audits of current systems. Staff training programs are also being expanded to avoid on-the-job learning crises.
Additionally, the agency is preparing to launch a dedicated digital asset division to centralize crypto-related cases currently scattered across multiple departments. Details on structure and timeline will be finalized in consultation with the Ministry of the Interior and Safety.
Aligning with Global Standards
Ko Young-il stated that the approach mirrors practices already adopted in developed markets, signaling South Korea's adaptation to international standards rather than improvising its own playbook. As crypto seizures become more common in enforcement cases, the infrastructure around them must mature rapidly. Last month's incident proved that even a small operational slip can become an expensive lesson—one the NTS appears determined not to repeat.
South Korea is not alone in facing such challenges; law enforcement agencies worldwide grapple with secure storage and disposal of seized crypto. The NTS's move could serve as a model for other government bodies navigating similar dilemmas.