South Korean financial authorities have vowed to overhaul their crypto-custodial practices following public scrutiny over multiple incidents that resulted in the loss of nearly $30 million in seized digital assets over the past few months.
Authorities are moving to improve crypto storage practices
South Korea’s Deputy Prime Minister and Finance Minister Koo Yoon-cheol confirmed that authorities are reviewing the management practices of seized crypto assets by state and government agencies and taking measures to prevent theft and loss of these assets.
“In response to the incident of data leakage of digital assets in the National Tax Service (NTS), the government urgently wrote the situation and management practices of digital assets held and managed by public and public institutions, such as those seized from delinquent taxpayers, in cooperation with relevant institutions, including the Financial Services Commission (FSC) and the Financial Supervisory Service (SunFSS).
“We will also soon develop and implement measures to prevent recurrence, including strengthening the security management of digital assets,” he said, noting that the South Korean government will only retain cryptocurrency assets obtained through legal actions, such as confiscation.
The upcoming review and Koo’s statement follows a wave of criticism of the authority’s practices and management of crypto assets after the tax agency disclosed the recovery seed phrase of the seized wallet, which led to unauthorized access and theft of tokens within it.
As reported by Bitcoinist, South Korea’s National Tax Service recently issued an official press release to highlight its tax liability, but accidentally shared a wallet seed phrase in the process.
Thursday’s press release was reportedly part of a broader NTS enforcement campaign targeting people who owed back taxes, citing seized crypto assets as evidence of the agency’s efforts.
However, it included a picture of two cool Ledger wallets along with a handwritten note that exposed the wallets’ mnemonic recovery phrases.
Soon after, one of the entire seized wallet balances, 4 million Pre-Retogeum (PRTG) tokens worth about $4.8 million, was transferred to another address, blockchain researchers found, but noted that the cryptocurrency has very low liquidity.
According to Professor Cho Jae-woo of Hansung University’s Blockchain Research Institute, other wallets with seed phrases visible in the same image are not at serious risk because it is also difficult to convert the leaked tokens into cash.
The expert criticized the incident, but expressed hope that it “serves as a turning point for the establishment of a stable virtual asset management system in the Korean public sector.”
South Korea’s prison problem
Last week’s incident is the latest in a series of security breaches that have resulted in the loss of nearly $27 million in seized crypto assets held in government custody since the beginning of the year.
In January, the Gwangju District Prosecutors’ Office faced a backlash after revealing that 320 Bitcoin (BTC), worth about $21 million, had gone missing months earlier. According to local reports, authorities only discovered the theft during a routine check of seized financial assets, which are being held as criminal evidence.
Prosecutors found that the crypto assets, which were first seized in 2021, were lost to fraud in August when authorities processed the assets. Notably, a malicious actor emptied wallets after investigators mistakenly entered a phishing website.
In an unexpected turn of events, the hacker returned the stolen bitcoins in mid-February, the Gwangju District Prosecutors’ Office confirmed, vowing to continue to track down the malicious actors while conducting related investigations and tests.
The incident sparked a nationwide investigation that last month revealed another security breach at Seoul’s Gangnam police station. Gangnam Station announced that it had forfeited 22 BTC, worth around $1.4 million at the time, that had been voluntarily submitted to authorities during an investigation in November 2021.
Local news outlets reported that the leak was not discovered until recently because the investigation into the case had been suspended. The check revealed that the cold wallet that holds the Bitcoin was not stolen. However, assets stored inside have disappeared without a trace, deepening concerns about local authorities’ knowledge of cryptocurrencies and proper measures to handle and store seized digital assets.
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