Asian Approaches to Tracing Digital Assets of Debtors

South Korea. The country faced a widespread phenomenon when citizens who owed taxes or fines began investing money in cryptocurrency to hide it from the authorities.

The reaction was swift and rather tough: local authorities developed digital systems for seizing crypto assets. In particular, the city of Paju in 2024 introduced an electronic system for tracking and confiscating cryptocurrency assets from tax delinquents. The city tax service identified 17 debtors who owed 124 million won (about $88,000) and officially warned them that their crypto assets on exchanges would be forcibly seized and sold to repay debts if they failed to pay by the specified date. Paju officials stressed that this was not the first case: earlier, in July 2024, cryptocurrency worth 100 million won had been confiscated from local debtors. The government’s message is clear: “cryptocurrency cannot be used to avoid paying debts.”

Importantly, South Korea created the legal framework for such actions: under the law, tax authorities may request information from local exchanges about debtors’ assets, and exchanges are obliged to comply with seizure orders. In addition, amendments were adopted allowing confiscated coins to be sold via state platforms. This experience is notable because it shows that when there is political will, cryptocurrencies cease to be a “safe haven” for debtors. The South Korean model is essentially a “hunt for crypto-evaders”: the authorities conduct public raids, seize assets, and thereby encourage people to pay debts voluntarily rather than hide them digitally.

The People’s Republic of China took a radical path: since 2021, the circulation of cryptocurrencies has been banned in the PRC (any transactions with them are declared illegal). Formally, therefore, Chinese debtors cannot own cryptocurrency at all. In practice, of course, some citizens continue to hold bitcoin (for example, through foreign platforms), but legally, if such an asset is discovered, the state simply confiscates it as illegal. From an asset-tracing perspective, this simplifies the government’s task — methods of criminal prosecution apply. However, for private creditors in China, the situation is ambiguous: on the one hand, a debtor who hid assets in crypto becomes vulnerable (they can be prosecuted merely for possession), but on the other hand, the creditor is unlikely to recover those coins, as the state will most likely seize them for violating the law. As a result, in the PRC, crypto-related debts are settled either informally (through shadow agreements) or the creditor loses any chance of recovery. The Chinese approach is rather an exception and poorly applicable in democratic countries.

These jurisdictions aim to become crypto-friendly, and therefore also pay attention to protecting creditors’ rights. In Singapore, a licensing regime for exchanges operates; courts recognize cryptocurrency as property and have already issued freezing orders in fraud cases. Hong Kong, since 2023, has opened a regulated crypto market — this means that exchanges in Hong Kong are subject to laws and cooperate with courts. If a debtor holds assets on a Hong Kong exchange, a creditor can obtain a local court order to freeze them, and the exchange will comply. Japan, since the days of Mt.Gox (2014), has introduced strict rules for cryptocurrency exchanges — all operators must register clients and report. Japanese courts in bankruptcy proceedings already distribute crypto assets among creditors (for example, the ongoing process of returning funds to Mt.Gox investors, where remaining assets are in bitcoin). This creates the foundation for enforcement officers to pursue such assets in the future as well. For instance, in 2022, a Tokyo court issued an order requiring a crypto exchange to transfer a debtor’s cryptocurrency to a court-appointed administrator — effectively an analogue of the UK mechanism mentioned earlier, but within Japanese law.

International cooperation. It is important to note that tracing digital assets is often cross-border in nature, so countries are beginning to cooperate with one another. Networks such as the International Cryptocurrency Enforcement Network exist, where law enforcement agencies of different states exchange information about identified wallets of criminals. These channels can also assist in civil cases: for example, Ukrainian police may, through Europol, learn that in Germany a crypto asset linked to a Ukrainian debtor has been seized and initiate a transfer procedure. Although such cases are still rare, in the future one should expect the emergence of international treaties that will simplify mutual recognition of decisions concerning virtual assets (similar to what once happened with bank accounts).