South Korean police draft crypto seizure rules after custody lapses

South Korea’s National Police Agency is moving to standardize how seized cryptocurrencies are stored and managed, drafting guidelines that cover privacy-focused assets as authorities seek more robust asset handling. The initiative comes as investigations increasingly involve digital assets, and past incidents exposed gaps in custody processes. The KNPA’s draft directive outlines compliance requirements at each stage of crypto seizure, including the management of software wallets and private keys. The move mirrors a broader push among regulators to tighten control over the lifecycle of digital assets once they land in government custody, and it places a spotlight on the risks tied to custody for privacy-focused tokens and mainstream coins alike.

Key takeaways

The KNPA’s draft directive aims to standardize seizure handling, with explicit procedures for wallet addresses, private keys, and custody workflows across cases involving digital assets.

Plans to select a private custody provider are scheduled for the first half of 2026 after three bidding attempts in 2025 failed to yield a suitable partner.

Budget constraints are a recurring challenge, with a reported allocation of 83 million won (about $55,600) to manage seized crypto assets, underscoring risk despite limited funding.

A phishing-related custody incident intensified scrutiny earlier this year when government-held Bitcoin disappeared from prosecutors’ custody, prompting a rapid push to strengthen controls.

Historically, authorities have disclosed that a substantial share of seized crypto comes from the Bitcoin (CRYPTO: BTC) and Ether (CRYPTO: ETH) ecosystems, with multi-year totals used for public treasuries and ongoing cases.

The policy also contemplates privacy-focused tokens, such as Zcash (CRYPTO: ZEC), signaling a broader risk-management approach that extends beyond the most liquid assets.

Tickers mentioned: $BTC, $ETH

Market context: The move to codify seizure custody aligns with a broader trend of tightening regulatory oversight around digital assets, as authorities increasingly require auditable chains of custody and documented controls. In a market where liquidity and risk sentiment can shift quickly, formal custody arrangements may reduce the potential for asset loss and improve transparency during investigations.

Why it matters