South Korea investigates seed phrase leak in photo leading to $4.8 million crypto theft from tax authority

• South Korea's National Tax Service lost about $4.8 million in seized cryptocurrency after publicly sharing a photo that exposed hardware wallet seed phrases.
• The incident is the country's second major loss of seized crypto, following a 2021 case involving 22 BTC held by police.
• Authorities have asked police to help recover the stolen funds and pledged an external security review.

South Korean tax authorities lost $4.8 million of seized crypto after displaying the relevant wallets' seed phrases in a photograph covering the Feb. 26 event.

The crypto was taken immediately after the National Tax Service (NTS) shared a photo that included hardware wallets and their secret phrases. The service apologized for the incident, Asia Business Daily reported on Sunday.

"In an effort to provide more vivid information, we did not realize that sensitive information was included and carelessly provided the original photo," the tax office said. "This is entirely the fault of the National Tax Service (NTS), with no excuse."

This is at least the second time something like this has occurred in the country. South Korean authorities faced scrutiny over a separate failure in which Seoul’s Gangnam police allegedly lost 22 BTC (roughly $1.5 million) in a 2021 hacking case after leaving the funds and seed phrase with a third-party custodian. The authors of that theft were recently detained.

The new case involves a taxpayer who owed the NTS capital gains tax, which led to the individual’s home being raided. The authorities took control of at least four hardware wallets and cash. They then photographed the seized items, which included at least two seed phrases, and shared the unblurred photo publicly..

The NTS requested police intervention to recover the stolen cryptocurrency. The tax authority also revealed plans to conduct an external review of its overall security system and to overhaul the entire manual for the process from the seizure to the sale of virtual assets.

Koo Yun-cheol, South Korea’s deputy Prime Minister and Minister of Finance and Economy, confirmed the leak in an X post on Sunday.

Koo said several government agencies, including the Financial Services Commission and the Financial Supervisory Service would investigate the leak. He also said they would scrutinize how government agencies and public institutions seize and manage digital assets to prevent recurrence.

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