South Korea’s Police Agency Overhauls Crypto Seizure Guidelines, Targeting Privacy Coins and Digital Wallets

The Korean National Police Agency (KNPA) is set to implement new guidelines for the seizure and management of virtual assets, marking the first time “privacy coins” will be explicitly addressed. According to a report by Korean media outlet Asia Economy, the police have finalized a draft framework for these regulations, formally incorporating “software wallet” management protocols. This move establishes a crucial foundation for the future seizure and custody of highly anonymous crypto assets. It also reflects a concerted effort by South Korean law enforcement to strengthen its digital asset management framework, particularly following recent security vulnerabilities in asset custody.

Why New Regulations? The Unique Nature of Privacy Coins

Historically, the police have predominantly relied on hardware wallets (cold wallets) for securing seized virtual assets. However, as Asia Economy highlights, this method often proves inadequate for privacy coins. Many privacy coins necessitate the installation of specialized software on a computer or server to create and manage wallets. Their private keys are typically stored as files or strings, rather than being solely managed by a physical device, differentiating their custody requirements from mainstream assets like Bitcoin. This technical distinction has previously left frontline officers operating software wallets without clear official guidelines, leading to practical ambiguities and heightened risks.

The report further notes that privacy coins, by design, conceal transaction details such as sender, recipient, and amount. This anonymity has long made them a preferred tool for criminal activities and money laundering. High-profile cases in South Korea, such as the “Nth Room” sex crimes, and various North Korean crypto-related money laundering operations, have previously drawn attention to the misuse of such anonymized assets. This context forms a significant backdrop for the police’s decision to specifically integrate privacy coin management into the new guidelines.

A Growing Challenge: Billions in Seized Digital Assets

As of March 17th, the total value of virtual assets seized by Korean police in cases that have reached final judgment over the past five years amounts to approximately 54.5 billion Korean Won (KRW). Of this, roughly 50.7 billion KRW comprises Bitcoin, with another 1.8 billion KRW in Ethereum. This estimate only accounts for cases with completed judicial processes; the actual scale of seizures could be considerably higher, especially when factoring in instances where suspects refuse to disclose wallet passwords. Furthermore, given the volatile nature of cryptocurrency prices, asset valuations can fluctuate significantly depending on the time of assessment.

Korean police officials candidly admit that their operational model has fundamentally changed. While physical evidence was once locked away in warehouses, law enforcement must now manage wallet addresses and private keys. This paradigm shift underscores that virtual assets are not merely a new form of criminal proceeds; they are compelling the entire enforcement system to re-establish comprehensive procedures, from seizure and sealing to long-term custody.

KNPA Plans to Select Private Custody Providers by Mid-2026

Beyond adjusting internal guidelines, the KNPA also intends to complete the selection of private custody providers by the first half of 2026. In 2025, the Korean police issued three separate tenders to find external custody providers capable of managing seized virtual assets, but all failed. Reasons cited included the small scale and insufficient stability of applicant firms, as well as an inadequate budget. The report indicates that the police’s current allocated budget for this purpose is only 83 million KRW, approximately 55,600 USD, which is deemed insufficient given the substantial risks that providers would need to undertake.

Korean media also quoted experts who warned that decentralized management of wallets and seed phrases by various local police agencies could create significant control vulnerabilities. These experts advocate for the government to consider establishing a more centralized and professional “public custody” mechanism. This approach would entrust high-risk digital assets to specialized institutions for unified management, thereby reducing the potential for internal control failures and security incidents.

Asset Loss Incident Catalyzes Systemic Reforms

The acceleration of these seizure guidelines in South Korea is also linked to a recent incident involving vulnerabilities in government-held Bitcoin. On January 23rd of this year, the Gwangju District Prosecutor’s Office discovered during a routine inspection that approximately 320 BTC, seized in August 2025, had gone missing. The prosecution later announced on February 19th that the stolen Bitcoin had been returned by unknown hackers. By March 10th, the prosecution confirmed the sale of the assets, depositing approximately 31.59 billion KRW into the national treasury.

This incident vividly illustrated that government agencies, when safeguarding virtual assets, face not only price volatility but also significantly higher cybersecurity and internal control risks compared to traditional physical evidence. The KNPA’s new regulations are more than just technical reinforcements; they represent a foundational governance overhaul for law enforcement agencies, designed to align with the digital asset era amidst an expanding scale of seizures.

The Korean police’s initiative to formulate new virtual asset seizure guidelines, particularly by integrating privacy coins and software wallets into formal regulations, signifies a fundamental shift in their approach—from traditional physical evidence management to sophisticated digital asset security governance. Should private custody institutions be successfully selected in the future, Korean law enforcement may further establish a more centralized and institutionalized model for crypto asset custody. For the global market, this is not merely an adjustment of domestic enforcement procedures in South Korea; it reflects a growing awareness among governments worldwide that as crypto assets increasingly become criminal proceeds and evidence, “how to securely store them” has become as critical a regulatory challenge as “how to seize them.”