Authorities are currently investigating the unauthorized movement of cryptocurrency that was seized by the National Tax Service (NTS) of South Korea. This investigation comes in light of a significant error where the NTS unintentionally released a wallet recovery phrase in a press release photograph.
This incident originated from a press release issued on February 26, in which the NTS announced the confiscation of four Cold Wallets from a taxpayer who had defaulted on capital gains tax obligations. The accompanying image included a mnemonic phrase that is crucial for restoring access to the wallet, allowing anyone with the phrase to retrieve the funds without needing the physical Cold Wallet.
Following the release, the Cyber Terror Response Division of the Korean National Police Agency received a report from an individual who attempted to access the cryptocurrency after seeing the exposed mnemonic code. This person claimed to have returned the assets the following day. The police intend to examine transaction records to confirm this account.
Prior to this report, the NTS had already sought police assistance after discovering that approximately 4 million PRTG tokens, valued at about 6.9 billion won ($4.8 million), had been transferred from a Cold Wallet. Notably, a professor at Hansung University, Cho Jae-woo, analyzed the token movements and noted that the transfer occurred shortly after the press release was disseminated.
The incident prompted an apology from the NTS on Sunday, acknowledging their failure to identify the sensitive information in the original photo. Deputy Prime Minister and Finance Minister Koo Yun-cheol also took to social media to express the government”s commitment to reviewing the management of digital assets held by public institutions and to implementing measures aimed at preventing similar occurrences in the future.
This is not the first instance of mismanagement involving mnemonic phrases in South Korea. A recent case involving the Seoul Gangnam Police Precinct highlighted similar vulnerabilities, where a Cold Wallet containing 22 Bitcoins was compromised due to improper management practices.
In response to these ongoing issues, police introduced new regulations on February 23 to enhance the management of seized cryptocurrencies. Future protocols include entrusting confiscated assets to specialized custodial firms and establishing stringent rules for their storage.
The police have outlined a dual responsibility system, requiring both an evidence manager and a lead investigator to oversee the management of Cold Wallets. This system aims to ensure that control over the recovery phrase and passwords is divided, with regular inspections to monitor the balances of cryptocurrency addresses.
This article was originally published in Korean and translated by a bilingual reporter, with editing by a native English-speaking editor. All translations are subject to review by our editorial team.
