South Korea's National Tax Service (NTS) is accelerating plans to transfer custody of seized virtual assets to private custodians after a security breach exposed the risks of in-house management. According to a report by Zdnet Korea citing unnamed sources, the agency aims to select a qualified custodian within the first half of 2026 as part of broader efforts to tighten control and prevent a repeat of last month's theft incident.
Incident Trigger: Mnemonic Leak Leads to Theft
On Feb. 26, the NTS inadvertently exposed mnemonic codes tied to seized assets in a public disclosure related to tax delinquency enforcement. The slip led to two separate thefts, forcing the agency to confront a simple reality: managing crypto is not the same as holding cash in a vault. The agency is now reviewing plans to entrust seized holdings to private custodians while building out detailed selection criteria.
Selection Criteria: Security, Scale, and Insurance
Among the criteria under consideration are security standards, company scale, and insurance coverage aligned with South Korea's Virtual Asset User Protection Act. An industry source noted that the process will be selective, as not every custody provider can be entrusted with sensitive government-seized assets. The NTS plans to begin the selection process once those criteria are finalized, with urgency driving the timeline—officials aim to complete both the decision to use custody services and the selection of a provider within the first half of the year.
Task Force Launches Systemic Reforms
To manage the transition, the NTS established a dedicated unit—the Virtual Asset Management System Advancement Task Force—on March 11, led by Ko Young-il. The group is tasked with revising operational manuals governing the full lifecycle of seized assets (confiscation, storage, liquidation), conducting external audits, and expanding professional training. Ko said the approach mirrors practices in developed markets, aligning with international standards. The agency is also preparing to launch a Digital Asset General Division to centralize crypto-related oversight currently spread across multiple departments, with details to be finalized in consultation with the Ministry of the Interior and Safety.
An NTS official acknowledged the fragmentation reflects the newness of digital assets in government operations, but noted that an integrated system is now essential. The broader message is clear: as crypto holdings become more common in enforcement cases, the infrastructure around them must mature. If last month's incident proved anything, it's that even a small operational slip can turn into a costly lesson—one the agency appears determined not to repeat.