South Korea NTS Moves to Private Crypto Custody After $4.8M Wallet Leak

Highlights:

• A $4.8 million loss pushed authorities to accelerate crypto custody reform after a wallet phrase leak.
• The National Tax Service will shift seized crypto storage from internal systems to licensed custody providers.
• A wider government review is underway after repeated custody failures, including a reported 22 BTC loss.

The National Tax Service is selecting a private crypto custody provider to store seized crypto assets after a security breach exposed internal weaknesses. The issue began on 26 February during a public release. The agency shared an image of a Ledger device alongside a recovery sheet. The wallet’s mnemonic phrase appeared clearly in the image.

South Korea's tax agency hunting for private crypto custodian after wallet seed phrase leak exposed seized assets.

• Government custody proves unreliable for confiscated crypto
• Sets precedent for outsourcing official digital asset storage

🔐 $BTC $ETH

— unhedged (@unhedgedx) March 20, 2026

The full recovery phrase could be read by anyone who saw the release. The wallet was accessed by unknown actors shortly after. They moved confiscated crypto assets without permission. The overall value was approximately 4.8 million dollars. The same phrase was reported to allow repeat access attempts.

The event compelled the agency to reconsider its approach to handling seized crypto. Officials discovered that there were several departments that shared custody duties. This arrangement reduced the speed of response and introduced control loopholes. It also complicated access monitoring to sensitive data.

The agency is no longer interested in keeping crypto custody within its control. Authorities are now looking at contracting companies specializing in digital storage. These companies manage access with well-organized systems. Moreover, the companies minimize direct exposure to sensitive wallet information.

NTS Task Force Leads Digital Asset Oversight Overhaul

The National Tax Service formed a task force on 11 March to manage the transition. The group will oversee custody provider selection and system changes. It will also review how the agency handles seized assets from start to finish. The agency is preparing detailed criteria for selecting a provider. Security remains the main focus. Officials will also review company size and operational capacity. Providers must also hold insurance under the Virtual Asset User Protection Act.

The agency is gathering expert input before finalizing these requirements. This step will guide how providers are screened. Once the criteria are ready, the selection process will begin. Officials plan to complete the process within the first half of the year. At the same time, the task force is reviewing internal procedures. It is updating manuals that explain how assets move through each stage. These stages include seizure, storage, and eventual liquidation. The agency wants each step to follow a clear process.

External experts will also review the system. These assessments will highlight weak points in the crypto custody process. The agency will adjust its approach based on these findings. The agency is also preparing staff training programs. These sessions will focus on handling digital assets and following updated procedures. Officials are also working on creating a dedicated unit for crypto-related work.

South Korea Crypto Custody Reform Gains Urgency After Repeated Government Asset Failures

A second incident put the authorities under pressure. Gangnam police reportedly lost 22 Bitcoin in a custody process. This incident was not only the concern of a single agency but also revealed that such risks were present throughout the system.

🚨DISASTER: SOUTH KOREAN POLICE LOSE $1.5M IN SEIZED BITCOIN

Seoul’s Gangnam Police reportedly lost 22 $BTC (~$1.5M) from confiscated crypto, without the cold wallet ever being physically stolen.

The incident involves the Seoul Gangnam Police Station and funds seized in a 2021… pic.twitter.com/dbawgLpSa9

— BSCN (@BSCNews) February 13, 2026

The government responded with a broader review, and on 1 March, Deputy Prime Minister Koo Yun-cheol announced a cross-agency probe. Authorities are examining how public institutions store seized digital assets, and the crypto custody review focuses on identifying where failures occur.