South Korea proposes new warrant rules for seizing self-custodied crypto

South Korea’s National Tax Service has proposed reforms to the Criminal Procedure Act that would create warrant requirements and court-supervised custody wallets specifically for seizing self-custodied cryptocurrency during criminal investigations.

If adopted, the reforms would establish clear warrant requirements, define custody procedures, and introduce court-supervised wallets to safeguard seized cryptocurrencies.

The recommendations come at a critical time for South Korea, where digital asset regulation has become a growing policy priority following several high-profile crypto-related investigations and a recent security incident involving government-held digital assets.

Criminal Procedure Act faces new test as self-custodied wallets create legal challenges

The proposed amendments stem from a research paper published in the June edition of the Criminal Policy Research journal by the Korea Institute of Criminology and Justice. The paper was authored by four officials from South Korea’s National Tax Service, including investigation team leader Jang Hee-won.

Their central argument is that the existing Criminal Procedure Act does not adequately address digital assets controlled directly by individuals through private keys. Unlike cryptocurrencies stored on centralized exchanges, self-custodied assets remain entirely under the owner’s control, making them significantly harder for investigators to secure.

The proposal follows a 2025 ruling by South Korea’s Supreme Court, which confirmed that Bitcoin held on a cryptocurrency exchange could legally be treated as property subject to seizure during criminal investigations. However, the authors noted that the ruling did not establish procedures for assets stored in hardware wallets or other self-managed wallets.

That distinction is crucial because self-custodied crypto cannot simply be taken into physical possession.

Even if investigators confiscate a suspect’s written recovery phrase or private key, there is no guarantee the individual has not retained another copy elsewhere. As a result, the owner could potentially move the cryptocurrency before authorities complete legal proceedings.

The researchers argue that Article 120 of the Criminal Procedure Act, which governs the execution of search and seizure warrants, was never designed with decentralized blockchain technology in mind. Traditional seizure procedures focus on tangible property, while cryptocurrency transfers involve moving digital assets between wallet addresses on a distributed ledger.

Proposed framework would introduce court-supervised crypto custody

To bridge these legal gaps, the researchers recommend creating entirely new procedural rules within the Criminal Procedure Act specifically for self-custodied digital assets.

Under the proposal, search warrants would need to contain detailed information before investigators could transfer cryptocurrency. This would include the exact type and quantity of digital assets, verified wallet addresses, destination wallets, approved transfer methods, and custody procedures.

The paper also recommends replacing single-agency custody with jointly managed wallets overseen by both investigative authorities and the courts.

According to the researchers, shared oversight would reduce the possibility of theft, unauthorized transfers, or misuse of seized assets while strengthening public confidence in government handling of digital property.

Where immediate transfer into a jointly controlled wallet is not technically possible, investigators would be permitted to move assets temporarily into a court-designated address to prevent suspects from transferring funds out of reach.

Ultimately, the proposal seeks to establish clear statutory rules governing wallet transfers, warrant execution, custody responsibilities, and long-term management of confiscated digital assets under the revised Criminal Procedure Act.

Legal experts globally have increasingly emphasized the importance of adapting criminal laws to emerging technologies.

As blockchain analytics firm Chainalysis noted in its annual crypto crime research, “Cryptocurrency is increasingly becoming embedded in traditional financial crime investigations, requiring law enforcement agencies to develop more sophisticated investigative capabilities.”

Similarly, Europol has repeatedly stated that digital assets present unique evidentiary and asset recovery challenges because ownership is controlled through cryptographic credentials rather than physical possession.

Security breach adds urgency to South Korea’s crypto reform push

The proposed legal overhaul also follows a significant operational setback for South Korea’s National Tax Service earlier this year.

In February, the agency inadvertently exposed the recovery phrase of a government-controlled cryptocurrency wallet in an official press release. Unauthorized individuals subsequently transferred approximately $4.8 million worth of seized digital assets.

The incident prompted the National Tax Service to launch a dedicated task force to review its cryptocurrency seizure, storage, and liquidation procedures.

Officials also began evaluating partnerships with private-sector crypto custody providers capable of offering institutional-grade security infrastructure.

The researchers argue that stronger legal procedures must go hand in hand with improved custody standards. Simply granting investigators authority to seize digital assets would be insufficient without clearly defined management responsibilities and judicial oversight.

That combination of legal certainty and  operational security forms the foundation of the proposed reforms.

South Korea continues building its digital asset regulatory framework

South Korea has remained one of Asia’s most active jurisdictions in developing cryptocurrency regulation. Authorities have steadily introduced measures aimed at strengthening investor protection, improving exchange oversight, and combating financial crimes involving digital assets.

The latest proposal extends those efforts into criminal enforcement by recognizing that self-custodied cryptocurrencies require procedures fundamentally different from traditional asset seizures.

If lawmakers ultimately adopt the recommendations, the revised Criminal Procedure Act could become one of the first comprehensive legal frameworks specifically addressing the seizure and judicial custody of self-managed digital assets.

The proposal also reflects a broader global trend as governments seek to modernize legal systems for blockchain technology while balancing effective law enforcement with procedural safeguards and property rights.

Although the recommendations remain under legislative consideration, they signal South Korea’s determination to close regulatory gaps exposed by both technological innovation and recent security failures. For investigators, courts, and cryptocurrency holders alike, the outcome could establish an important precedent for how self-custodied digital assets are handled during future criminal investigations.