Korea's Supreme Court Rules Exchange-held Bitcoin is Seizable

Rejects Challenge to Seizure of Bitcoin in Exchange Wallets
"Bitcoin, Given Its Controllable Economic Value, Qualifies as a Seizable Asset"
"Coins in Exchange Wallets Are Effectively Controlled via Users’ Private Keys"

by Jeong Hun Lee

South Korea‘s Supreme Court has ruled for the first time that bitcoin owned by individuals but held in custody at cryptocurrency exchanges like Upbit or Bithumb can be subject to seizure under the country’s Criminal Procedure Act.

[AI DALL-E3가 생성한 이미지]

In a decision dated Dec. 11, the Supreme Court‘s Second Division, with Justice Kwon Young-joon presiding, dismissed a re-appeal filed by a man identified as Mr. A, who sought to overturn authorities’ seizure measures. The court said that under the Virtual Asset User Protection Act, virtual assets are “electronic tokens” with economic value that can be traded or transferred electronically—placing bitcoin within the scope of assets that courts and investigative agencies may seize.

Legal observers say the ruling is notable because it confirms the legality of seizing virtual assets used in crimes and clarifies how crypto held through exchange wallets should be treated at the investigative stage.

The Supreme Court has previously recognized bitcoin as subject to forfeiture. In 2018, it held that bitcoin can be confiscated and vested in the state. But the latest decision goes further, reasoning that because bitcoin is an electronic token capable of being traded electronically, virtual assets managed or disposed of through an exchange‘s custodial wallet can also constitute “property to be forfeited” and therefore be seized under relevant provisions of the Criminal Procedure Act.

The dispute stems from a January 2020 police action in which authorities seized 55.6 bitcoins—then worth about 600 million won (roughly $500,000 at the time)—held in A’s account at a cryptocurrency exchange amid an investigation into suspected money laundering.

After police seized the bitcoin linked to A‘s exchange-connected wallet, A argued that bitcoin in an exchange account should not be treated as a “thing” subject to seizure under the Criminal Procedure Act and that the seizure should therefore be invalidated. Article 106 of the act permits seizure of evidence or property expected to be forfeited, but only where it is deemed related to a case.

A lower court rejected that argument. The Seoul Central District Court found that while virtual assets are not physical objects, they function as electronic tokens premised on electronic transfer and trading and thus qualify as property presumed forfeitable under the Criminal Procedure Act, making the seizure lawful. A then pursued further review at the Supreme Court.

In its ruling, the Supreme Court said that the scope of seizable items under the Criminal Procedure Act includes both tangible property and electronic information. It described bitcoin as an electronic token with independent manageability, tradability and economic value—and, crucially, with the potential for a person to exercise substantive control over that value—making it a lawful target of seizure by courts or investigative agencies.

The court also addressed the mechanics of control in an exchange setting, noting that the management and trading of bitcoin within an exchange is, in substance, controlled by the holder through the private key stored in the associated electronic wallet. On that basis, it concluded that the seizure of bitcoin held under A’s name at the exchange was lawful and that the lower court did not err in dismissing A‘s objection.

The decision adds to a growing body of Supreme Court precedent on virtual assets. In 2018, the court held that bitcoin, as an intangible asset with property value, can be confiscated. In 2021, it characterized bitcoin as a type of virtual asset that digitally embodies economic value and can be transferred, stored and traded electronically, and held that it can constitute a “property interest” and therefore be the object of fraud.

A legal professional stated the latest ruling as one that “clarifies the legal nature of coins held and traded at cryptocurrency exchanges and expressly confirms that they can be seized lawfully at the investigative stage.”

이정훈 (futures@edaily.co.kr)