South Korea’s police have moved to harden controls over seized cryptocurrencies after a string of costly security failures exposed weak custody practices across government agencies.
The National Police Agency (KNPA) has drafted a new directive, reported by Asiae, that lays out standardized compliance requirements for every stage of crypto seizure, storage and management. The rules require law enforcement to adopt consistent procedures for handling wallet addresses, private keys and software wallets, and include special provisions for privacy-focused coins that can’t easily be stored on hardware wallets.
“In the past, seized assets were stored in warehouses. Now we must manage wallet addresses and private keys,” a KNPA spokesperson said, highlighting the shift from treating crypto like physical evidence to treating it as cryptographic data that demands technical custody controls.
The move follows public commitments from Finance Minister Koo and regulators — the Financial Services Commission and Financial Supervisory Service — to inspect digital assets held by public institutions and review how such assets are managed within enforcement processes. Those comments came after consecutive security incidents revealed serious lapses.
One case involved Bitcoin seized in 2021 that was subsequently lost after authorities relied on a third-party custodian and did not retain control of the private keys; the problem only emerged after an internal probe. Police also arrested two suspects tied to thefts from wallets associated with seized assets. In another high-profile incident, the Gwangju District Prosecutors’ Office lost about 70 billion won (roughly $48 million) in seized Bitcoin after a phishing attack exposed login credentials and enabled unauthorized transfers from a state-controlled wallet.
The KNPA directive represents a concrete step toward improving custody standards and accountability for public institutions handling digital assets, as South Korea responds to the operational risks that accompany law enforcement’s growing involvement with cryptocurrencies.
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