South Korea Orders Crypto Custody Overhaul After Police Lose Seized BTC

TLDR

• South Korea introduced new custody rules after police lost seized Bitcoin worth $1.4 million.
• The Finance Minister confirmed a full inspection of digital asset management across government agencies.
• Investigators revealed that Gangnam police never possessed the seed phrase for the seized Bitcoin wallet.
• Authorities arrested two individuals connected to the mishandled crypto case and expanded the inquiry.
• Bithumb experienced major system bugs that wrongly credited users with large amounts of Bitcoin.

South Korean authorities advanced new custody rules after investigators confirmed major lapses in handling seized crypto assets, and officials moved fast to review internal controls, and agencies prepared to address growing concerns over state-managed wallets.

South Korea Reviews Failures in State Crypto Storage

Officials launched an inspection of digital asset management after reports exposed errors in multiple enforcement cases, and agencies began gathering internal data. The Finance Ministry said it would work with financial regulators to correct weak custody practices, and it stressed the need for tighter operational oversight.

Koo Yoon-cheol stated that the government would coordinate with the Financial Services Commission and the Financial Supervisory Service, and he said the review would assess all public holdings. He also clarified that the state does not keep crypto for investment, and he insisted assets only enter custody through legal action.

Authorities started the review after a nationwide audit exposed earlier losses, and investigators traced several issues to flawed key controls. Officials said the process will continue until every seized wallet is verified, and they added that new standards will apply across ministries.

Police Lose Seized Bitcoin After Third-Party Mishandling

Gangnam District officers lost access to 22 BTC from a 2022 seizure, and investigators learned the coins sat in a wallet controlled by a third party. Officials said the police never held the seed phrase, and they confirmed the assets vanished before investigators detected the oversight.

The case involved a probe tied to a hacking inquiry, and prosecutors said two individuals now face arrest. They also opened inquiries into possible bribery, and they noted the lapse exposed flaws in technical custody procedures.

A Hansung University professor said the errors showed weak digital asset knowledge inside enforcement units, and he argued it harmed the national budget. Authorities linked the loss to outdated internal processes, and they said new custody rules will prevent similar failures.

Exchange Errors Spark for Further Scrutiny

Bithumb reported severe system bugs in February, and the problems created major transaction errors. The platform credited users with 620,000 Bitcoins instead of promotional funds, and the issue caused rapid price swings on the exchange.

The exchange reversed most faulty transfers, and officials said some users withdrew assets before systems stabilized. The company estimated unrecovered amounts at roughly 13 billion won, and it confirmed that internal accounting systems will undergo repair.

Lee Chan-jin from the FSS called the situation damaging for affected users, and he said some traders now face order reversals. Legal experts continued debating whether recipients who sold the miscredited Bitcoin may face prosecution, and they cited a 2021 Supreme Court ruling on digital asset classification.

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