South Korean government leak crypto wallet seed phrases — $5m vanishes

A crypto thief made off with up to $5 million worth of cryptocurrency after South Korean tax officials accidentally published a tax evasion suspect’s seed phrases online.

The National Tax Service began targeting crypto holders who fail to pay their taxes and traffic fines in recent years, seizing coins from people who default on their bills. They have also started publishing details of these crypto confiscations as evidence of their campaigns’ success.

But their latest promotional drive has backfired, as a photograph accompanying the February 26 press release displayed hand-written, uncensored seed phrases.

Seed phrases are combinations of 12 to 24 words used to back up and restore crypto wallets.

“The tax authorities have displayed a basic lack of understanding of how cryptocurrencies work,” Cho Jae-woo, director of the Hansung University’s Blockchain Research Institute, told South Korean newspaper Maeil Kyungjae.

The year has got off to a bad start for South Korean officials, with police losing $1.4 million worth of Bitcoin just days after prosecutors lost, then tracked down Bitcoin worth $20 million.

The stolen cryptocurrency in question was Pre-Retogeum, a small-cap altcoin with a market value of $13 million.

Hunt continues

A hacker immediately took advantage of the NTS’ blunder, the newspaper wrote, using the seed phrases to access and drain the wallets. Cho speculated the coins may have been drained by a “white hat hacker” — an individual who wanted their actions to expose security flaws before returning the crypto.

But in a statement released on March 1, the NTS said it was working with the police and “making every effort to recover the leaked cryptoassets,” although it believed the hacker “only stole the coins out of curiosity.”

It denied that the coins in question were worth $5 million, saying that the missing Pre-Retogeum haul was worth “far less than the reported figure.”

The NTS press release claimed the body had seized assets, including cash and crypto wallets, from 124 habitual tax evaders.

Officers explained special task force agents had performed on-site searches to hunt for crypto and other concealed assets.

In a statement on March 1, the NTS said it offered its “deepest apologies for causing concern to the public,” South Korean news agency Yonhap reported.

The tax body said it had behaved “carelessly” in “providing the original photo to the press without recognising that it contained sensitive information.”

“The government and [financial regulators] will inspect the status and management of digital assets held and managed by government and public institutions through confiscations from non-compliant taxpayers,” said the South Korean Deputy Prime Minister and Minister of Strategy and Finance Koo Yoon-chul.

Koo said Seoul would “quickly establish and implement measures to prevent a recurrence.”

Tim Alper is a News Correspondent at DL News. Got a tip? Email him at tdalper@dlnews.com.