Korean Taxmen Do a "Not Your Keys" Demo, Now Shopping for a Babysitter

In a masterclass of "what not to do," South Korea's National Tax Service (NTS) has been forced to go shopping for a professional crypto custodian. This comes after a February press release so spectacularly backfired it essentially handed thieves a gift-wrapped bag containing $4.8 million in seized digital assets. The cause? A classic case of "photograph the seed phrase for the press."

The agency’s big oopsie occurred on Feb. 26 when it proudly published an image of a Ledger hardware wallet. Right next to it, in crisp, unblurred focus, was a piece of paper displaying the full mnemonic recovery phrase—a move so antithetical to crypto security it’s like posting your online banking password on a billboard. Unsurprisingly, unauthorized parties swiftly performed a "user-activated exit" and transferred the confiscated crypto to a new home.

Now, in a bid to outsource the job it so clearly cannot handle, the NTS is drafting criteria to select a third-party custodian. The goal is to pick a partner by the first half of 2026, which in crypto time is roughly three bull markets away. Prospective candidates will be judged on their security standards, company size, and crucially, whether they carry insurance under South Korea’s Virtual Asset User Protection Act—presumably a non-negotiable after the last "protection" effort.

A newly-formed government task force has been given the keys to this particular selection process, though hopefully not on a piece of paper. Its mandate includes tightening up the operational manuals that cover the entire life cycle of seized assets, from initial grab to storage and final liquidation. The group will also be responsible for conducting security assessments and, one can only assume, some very basic staff training.

Further admitting that having crypto duties scattered across multiple departments is a recipe for more disaster, the agency also plans to spin up a dedicated digital asset division. The move aims to centralize expertise, or at the very least, centralize the blame for any future fiascos into one convenient office.

The seed-phrase leak, combined with a separate incident where Gangnam police allegedly misplaced 22 BTC seized from a suspect, has triggered a full-blown inter-agency review. On March 1, Deputy Prime Minister and Finance Minister Koo Yun-cheol announced a cross-government probe into how South Korea handles seized digital assets. It’s the bureaucratic equivalent of calling a family meeting after the kids have already burned the house down.

(Related: South Korea’s opposition party is pushing to scrap the planned 22% crypto tax.)