South Korea Proposes New Rules for Seizing Self-Custodied Cryptocurrencies

South Korea is considering changes to its criminal-procedure framework that would allow authorities to seize cryptocurrencies held in self-custodied wallets more effectively. The proposal, outlined in a research paper by Jang Hee-won and three other researchers, argues that existing procedures do not adequately address the practical and legal challenges involved in seizing digital assets controlled directly through private keys or mnemonic recovery phrases.

The researchers point out that unlike assets held by centralized exchanges, self-custodied cryptocurrencies are controlled directly and obtaining a suspect's recovery phrase or private key may not guarantee control of the assets. Multiple copies of a recovery phrase can exist, allowing a suspect or another person with access to the phrase to transfer funds before investigators complete the seizure process.

The proposed framework would establish clearer procedures for identifying, transferring, and securely storing self-custodied cryptocurrencies seized during criminal investigations. Search warrants would need to specify wallet addresses, asset types, token amounts, transfer methods, and storage arrangements. The proposal also recommends storing transferred assets under a three-party joint-management structure.