The city of Incheon has launched an unprecedented pilot project: the confiscation of cryptocurrencies from residents who are delinquent on their water bills.
The measure, announced to start on November 1, 2024 Hankook Ilbo, aims to recover approximately 813 million won (Hankook Ilbo) by cross-referencing data with local exchanges, including Upbit and Bithumb.
The strategy aligns with international guidelines for managing VASP and virtual asset risk, as described in the FATF guidelines updated in 2021 FATF – Guidance (2021) and within the Korean regulatory framework on personal data protection Korean Law Information.
According to the data collected from the official communications of the Waterworks Headquarters and the public reports of the exchanges, the crossing of records was made possible by established KYC procedures.
Industry analysts observe that, following the FATF guidelines of June 2019 with the 2021 update, local authorities have intensified formal requests to VASPs to accelerate collection.
Based on the public reports consulted, Incheon targeted the pilot on medium-low entity credits to verify operational effectiveness before any extensions.
What happened
The Waterworks Headquarters in Incheon has initiated a special debt recovery period lasting one month.
The agency cross-references the lists of debtors with the exchange records based on targeted formal requests and takes action against taxpayers with arrears over 500,000 won (approximately 360 dollars), which represent about 34% of the unpaid water debts identified Hankook Ilbo.
Why Now: The Context
According to reports from Gyeongin Bangsong and other local outlets, the goal of the recovery is to combat water utility evasion through traceable digital tools, which are faster and more precise compared to traditional collection methods.
In this context, the collaboration with exchanges allows for the identification of digital assets that have so far eluded classic tools.
“Water rates are an essential source of revenue for the service and the quality of life of our citizens,” stated Jang Byung-hyun, head of the Waterworks Headquarters, highlighting how the pilot strengthens the fiscal solidity and operational management of the entity.
Who is interested
- Users with overdue water bills over 500,000 won;
- People who have not responded to official notices;
- Holders of assets on domestic exchanges who have completed the KYC procedure.
How the Seizure of Crypto Works
Operational Phases
- Cross-referencing debtors with exchange records (Upbit, Bithumb);
- Sending a formal notice indicating the amount, terms, and method of payment;
- Seizure and subsequent liquidation of cryptocurrencies in case of non-payment;
- Possibility of installment payments or deferral for those demonstrating financial hardship.
Timing
The special pilot period lasts about a month. It should be noted that taxpayers have only a few working days to respond to the notice: confiscation occurs only in the event of no response within the indicated deadlines.
Return of any surpluses
In the event that the sale of cryptocurrencies generates proceeds exceeding the amount of the debt, the surplus will be returned to the citizen according to local procedures, after covering accrued charges and interest.
Legal Framework and Data Exchange with Exchanges
The collaboration with exchanges occurs in compliance with anti-money laundering obligations and the requests of the competent authorities.
In South Korea, the cooperation is based on the Personal Information Protection Act (PIPA, Korean Law Information) and the regulations related to financial transactions specified for VASPs.
Exchanges are required to retain identification data (KYC) and provide it to authorities in legal proceedings, while enforced collection is structured according to regulations on administrative execution and local collection.
Key Numbers
- Intervention threshold: over 500,000 won (~$360);
- Scope of the measure: approximately 34% of identified unpaid water debts;
- Estimated amount in recovery: 813,000,000 won (~$580,260).
Precedents and Regional Comparison
Similar measures have been implemented in other regions. For example, the province of North Gyeongsang recently conducted investigations into “hidden assets,” including cryptocurrencies, achieving significant results. In the first half of the year, local tax agents seized assets worth approximately 10.2 billion won and collected 4.9 billion won in arrears Hankook Ilbo.
What to do if you receive a warning
Immediate Checks
- Check the amount, the period, and the user ID indicated in the notice;
- Contact the local aqueduct office for clarification and assistance.
Installment or Deferral
- Request an installment plan by attaching concrete evidence of financial hardship;
- Wait for the formal outcome before the indicated deadline.
How to Dispute
- Submit an administrative appeal within the deadlines indicated in the notice;
- Attach all useful documentation (receipts, communications, account statements, attestations);
- Consider the assistance of a tax or legal advisor.
FAQ
How are seized cryptos liquidated?
The entity arranges the sale of digital assets and uses the proceeds to cover debt and charges. Any surplus is refunded to the holder according to local procedures.
Can exchanges refuse to cooperate?
Registered exchanges are required to comply with AML/KYC regulations and must meet formal requests from authorities in a traceable manner.
Does the measure also apply to other users?
Currently, the measure concerns exclusively the city water service. Any extensions to other utilities will be evaluated based on future resolutions and local regulations.
Implications and Insights
The Incheon pilot serves as a case study for other municipalities, potentially paving the way for the use of digital assets in the collection of public receivables.
Issues related to privacy, the proportionality of measures, and taxpayer protection remain open.
For cryptocurrency holders on exchanges who have completed KYC, exposure to local enforcement measures increases. That said, those in financial difficulty have an interest in contacting the authority as soon as possible to avoid the confiscation of their digital assets.