When a password matters more than the law

South Korea, long considered one of Asia’s most disciplined and technologically sophisticated crypto markets, has faced an extremely unpleasant and telling incident. Hackers stole confiscated bitcoins worth around 70 billion won from the Gwangju District Prosecutors’ Office, equivalent to approximately $47.7-48 million, according to local media. The loss was discovered during a routine internal audit of confiscated assets, which only amplified the public resonance of the case.

These were specifically bitcoins that had previously been seized from criminal suspects and were under state control. Until recently, such assets in South Korea existed in a legal gray zone: they could be seized, but the legal practice of full confiscation and custody was still taking shape. This is precisely why the incident proved so sensitive – it is the first large-scale case of crypto assets being lost while already under the management of the prosecution.

Gwangju High Prosecutors’ Office. /Yonhap

An internal audit revealed that the breach was caused by a banal, yet no less dangerous, human error. One prosecutor fell victim to a phishing attack and entered login credentials on a fake website. As a result, attackers gained access to a password that, according to preliminary information, was used to manage confiscated crypto assets. This means the attack was not technically sophisticated – there was no blockchain hack, zero-day exploit, or insider sabotage involved. Classic social engineering worked where it was least expected: inside a government institution.

In comments to Yonhap News, representatives of the prosecution confirmed the fact of the disappearance but refrained from providing details. According to them, the office is currently investigating the circumstances of the loss and attempting to determine the whereabouts of the confiscated bitcoins. Specific information about where the funds were transferred, through which wallets and exchanges they moved, has not yet been disclosed. It is possible that the information is being deliberately withheld so as not to interfere with investigative actions and potential international cooperation.

The context makes the situation even more ironic. In early January, South Korea’s Supreme Court officially recognized, for the first time, the legality of seizing bitcoins from exchange wallets in criminal cases. Prior to this, enforcement typically involved temporary freezes or arrests of assets, rather than full confiscation in favor of the state. Thus, the government had just acquired a clear legal tool for working with cryptocurrencies – only to almost immediately encounter a failure at the level of practical implementation and cybersecurity.

Against this backdrop, another high-profile case emerged almost simultaneously, highlighting the scale and systemic nature of crypto-related crime in the country. On January 19, South Korean authorities dismantled a large illegal money transfer network through which digital assets worth around 150 billion won, or approximately $110 million, had been moved over several years. The case was referred to prosecutors by the customs service, and three suspects were charged, including a 30-year-old Chinese national. They are accused of violating the Foreign Exchange Transactions Act. Investigators determined that the network had been operating for at least four years and had laundered more than $100 million during that time.

This undated Yonhap file photo shows the headquarters of the Korea Customs Service. (Yonhap)

The core mechanism was built around popular payment services WeChat Pay and Alipay. The funds were first converted into cryptocurrency on overseas exchanges, then transferred to wallets registered in South Korea, and subsequently cashed out or used domestically. In this scheme, cryptocurrency served as a universal intermediary, enabling the circumvention of currency controls and the breaking of money trail origins.

The level of disguise deserves particular attention. To avoid drawing the attention of banks and regulators, transfers were presented as entirely legitimate purposes: payments for cosmetic surgery, medical services, or overseas education. Formally, such transactions did not raise suspicions, and transaction volumes were distributed in a way that kept them below automatic monitoring thresholds.

Taken together, the two cases form a troubling picture. On one hand, the state is tightening regulation, expanding its authority to confiscate crypto assets, and demonstrating readiness to combat financial crime aggressively. On the other hand, government agencies themselves are proving vulnerable to basic cyber threats, while criminal networks continue to use cryptocurrency effectively as a tool for cross-border capital movement.

The incident involving stolen bitcoins from the Gwangju Prosecutors’ Office will likely become a turning point. It will almost certainly lead to a revision of custody protocols for confiscated digital assets, the introduction of multi-factor authentication, cold wallets, and the separation of access among multiple officials. Otherwise, trust in the state’s ability to securely manage crypto assets will be undermined no less severely than in cases involving private exchanges and custodial services.

Paradoxically, this very scandal may accelerate the professionalization of the government’s approach to crypto. Cryptocurrency has once again demonstrated that it is not about slogans or declarations, but about discipline, processes, and responsibility. And in this respect, there is no difference between a private company and a prosecutor’s office.