NTS launches task force to overhaul virtual asset management, draw up safeguards against incidents such as mnemonic leaks

South Korea’s National Tax Service (NTS) is launching a dedicated organization to review its management system in response to a recent virtual asset (cryptocurrency) leakage incident.

At a work briefing to the National Assembly’s Planning and Finance Committee on the 11th, NTS Vice Commissioner Lee Sung-jin said, “To ensure that incidents such as virtual asset leaks never happen again, we will launch the Virtual Asset Management Improvement Task Force to thoroughly analyze the causes and establish comprehensive preventive measures.”

Through the task force, the NTS plans to inspect the entire process of seizing and managing virtual assets and to strengthen internal control systems.

Previously, the NTS announced on Feb. 26 that it had seized four USB devices containing cold wallets (offline electronic wallets) holding virtual assets belonging to a delinquent taxpayer, but in the process also leaked the mnemonic code used to recover the wallets. A mnemonic code is a recovery password; if such information is exposed, anyone can restore the wallet and move the virtual assets.

Subsequently, an incident occurred in which virtual assets worth about 6 billion won were leaked externally using the exposed mnemonic code. The first person to leak the assets voluntarily reported that they had moved the assets for testing purposes and then restored them, but a second leak occurred after another individual siphoned off the coins again.

The virtual assets have not yet been recovered, and police are tracking the flow of funds.

The NTS also plans to strengthen its framework for responding to taxation issues related to virtual assets. Lee explained, “To address tax evasion involving virtual assets, we are preparing to establish a new Digital Asset Oversight Division, build an integrated analysis system, and implement an automatic exchange of information regime.”