Finance Minister Pledges Reform After Crypto Handling Failure in Korea

The pledge follows examples of custody lapses that have exposed weaknesses in how South Korean authorities secure seized crypto.

In brief

• South Korea’s finance minister has pledged sweeping reforms to how government agencies handle crypto.
• The review comes after police lost access to Bitcoin by relying on a third-party custodian without control of private keys.
• The latest failures have underscored the operational risks facing governments grappling with the technical demands.

South Korea’s finance minister has pledged sweeping reforms to how government agencies handle digital assets after a series of high-profile failures exposed weaknesses in state custody and oversight of seized crypto.

Deputy Prime Minister and Minister of Finance and Economy Koo Yun-cheol said Saturday that the government would urgently review how digital assets are held and managed across public institutions, following revelations that police and tax authorities mishandled confiscated digital assets.

“Together with relevant agencies such as the Financial Services Commission and the Financial Supervisory Service, the government will inspect the current status and management practices of digital assets held and managed by government and public institutions through seizure and other enforcement measures,” Koo said in a statement posted on X. 

He added that authorities would swiftly implement measures to strengthen digital asset security and prevent a recurrence.

Koo sought to draw a distinction between seized assets and government holdings, saying the state does not own digital assets beyond those acquired through legal enforcement actions such as seizures for unpaid taxes or criminal investigations.

The finance ministry did not provide details on what new safeguards would be introduced. Decrypt has reached out to the Ministry of Economy and Finance for further comment.

The latest failures have underscored the operational risks facing governments grappling with the technical demands of securing crypto, risks that officials now acknowledge require urgent reform.

The incident has also intensified scrutiny of South Korea’s public-sector handling of crypto, coming just weeks after regulators were criticized for failing to detect an internal system flaw at the exchange Bithumb that mistakenly credited billions of dollars’ worth of Bitcoin to users.

Koo’s pledge follows a report last week that police in Seoul’s Gangnam district lost access to 22 BTC, worth roughly $1.4 million at the time, after failing to follow custody guidelines. 

Officers allowed a third-party firm to manage the seized crypto and did not retain the private keys, leading to the loss of the funds in 2022. 

Two suspects have since been arrested, and prosecutors are investigating potential bribery linked to the case.

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