Anti-Corruption in South Korea

By Seong-Jin Choi* and Tak-Kyun Hong* (Baker McKenzie South Korea)

1. Domestic bribery (private to public)

1.1       Legal framework

Both the giving and taking of a bribe is regulated under Articles 129 to 133 of the Criminal Act, covering the anti-bribery statutes.

In addition, there are laws that categorically prevent public officials from taking bribes. For example, Articles 7 and 8 of the Act on the Prevention of Corruption and the Establishment and Management of the Anti-Corruption and Civil Right Commission (the “Act on Prevention of Corruption”) and the Public Officials’ Code of Conduct for Maintenance of Integrity act as regulations to prevent the taking of bribes. To discourage the giving of bribes to public officials during bids for government contracts, the Act on Contracts to Which the State is a Party excludes an entity found guilty of giving a bribe to a bid committee member from participation in a government procurement contract for up to two years.

On 28 September 2016, the Improper Solicitation and Graft Act, a very stringent and wide-reaching new anti-corruption law, came into effect.

1.2       Definition of bribery

There has been no explicit definition of bribery in the statutes that regulate bribery in Korea. However, the term has been interpreted broadly, and bribery can be any tangible or intangible benefit. Past cases involving prosecution of bribery included bribes that ranged from cash gifts to expensive meals, complimentary products, travel and entertainment.

For a benefit to become a bribe, it should be given or received “in connection with” the performance of duty of the official. Courts interpret the “in connection with” requirement broadly. Under the Improper Solicitation and Graft Act, however, a benefit need not be given or received “in connection with” the performance of duty of the official when the amount exceeds KRW 1 million at a time, or KRW 3 million in aggregate during one fiscal year.

In contrast to private or commercial bribery, the public official does not have to receive an economic benefit “in response to an improper request” concerning his or her duty in order for him or her to be found guilty of taking a bribe.

1.3       Definition of public official

Although the State Public Officials Act and the Local Public Officials Act provide basic definitions of public officials and those employed by the state and local government, the Criminal Act does not include a definition of a public official. Thus, the definition of who is a public official may vary depending on the statute regulating the specific act, and can be determined by key precedents. There are many statutes that specify the officers, directors or representatives of certain state-owned or state-controlled entities as public officials.

A representative statute is the Act Concerning Aggravated Punishment of Specific Crimes (the “Specific Crimes Act”). The Specific Crimes Act extends the definition to officers of organizations prescribed by Presidential Decree. Qualifying organizations include those in which government funds constitute 50% or more of their capital investments directly or indirectly, and organizations over which any level of government exercises significant control, including appointment and dismissal of officers or making material decisions due to the impact of the organization on the national economy. In addition, the Enforcement Decree of the Specific Crimes Act sets out an exhaustive list of state-controlled entities that are considered to be public officials.

The Ministry of Strategy and Finance also issues annually a list of state-owned, -controlled or -subsidized entities. The corporate entities constitute public corporations and quasi-government entities pursuant to the Act on Administration of Public Entities (AAPE). The directors and officers of the public corporations and government-controlled entities are considered to be public officials.

The Improper Solicitation and Graft Act further broadens the scope of “deemed public officials.” Under the Improper Solicitation and Graft Act, the definition applies to not only public officials and employees of state-owned enterprises but also employees of private media companies, as well as teachers and employees of private schools, and private persons performing certain public duties.

1.4       Consequences of bribery

Depending on the methods a bribe was given or extracted by the public official, punishments to public officials range from suspension of qualifications for up to 10 years to prison sentences for up to five years. A suspension of qualifications is described in Article 43 of the Criminal Act as a deprivation of: (i) the qualifications to be a public official; (ii) voting rights and eligibility to run in public elections; (iii) qualifications to conduct necessary business prescribed by the Public Act; and (iv) qualifications to be a director, auditor or manager of a company or an inspector or custodian of a company’s business. If the amount of the bribe is KRW 30 million or more, the prison sentence may be increased up to life imprisonment, based on the amount of bribery. If there are multiple counts of violations, the prison sentence or fines can be increased by up to 150%.

Article 134 of the Criminal Act also prescribes confiscation of the bribes or the disgorgement of the monetary equivalent from the recipient.

The party that is found guilty of giving a bribe to a public official may be sentenced to a maximum of five years’ imprisonment or a fine of up to KRW 20 million. In multiple counts of violations, prison sentences and fines can be increased by up to 150%.

Under the Improper Solicitation and Graft Act, if a public official (or deemed public official) receives, demands, or agrees to receive from the same person a benefit worth more than KRW 1 million on a single occasion or KRW 3 million in aggregate during one fiscal year, such person may be subject to imprisonment for up to three years or fined up to KRW 30 million, irrespective of whether the benefit was provided in relation to his or her duties as a public official. When the benefit is less than the aforementioned cap amounts, and the benefit is given in relation to the public official’s duties, the provision or receipt of such benefit is punished by a surcharge (in the range of twice to five times the value of the received benefit) regardless of whether said benefit was provided to obtain an improper advantage.

1.5       Political contributions

The Political Funds Act sets specific procedures of political contributions and sets limits on the amount. If anyone contributes political funds of more than KRW 3 million over a year (more than KRW 5 million when donated to presidential candidates), the amount donated and his or her personal details shall be reported to National Election Commission, and shall be open to the public (Article 40, 41 of National Election Commission Rule on Management of Political Fund). Article 31 of the Political Funds Act prevents companies or foreign nationals from making political contributions.

1.6       Limitation applicable to hospitality expenses (gifts, travel, meals, entertainment, among others)

Generally, there are no specific limitations to hospitality expenses; this would be determined on a case-by-case basis, depending on the circumstances and the benefits conferred in exchange for the bribes.

The Improper Solicitation and Graft Act does permit certain exceptions for benefits provided to ease social relations between parties. The main exceptions are: 1) meals up to KRW 30,000, gifts up to KRW 50,000, and congratulatory or condolence money up to KRW 100,000, unless such benefits are provided in return for a favour or to influence the discharge of the public official’s duties; 2) transportation, accommodation, and food and beverages that are generally and uniformly provided by an organizer of an official event related to the duties of a public official, to all participants of the event; and 3) souvenirs or promotional goods distributed to many and unspecified people (Article 8.3 of the Improper Solicitation and Graft Act, Article 17 of the Presidential Decree of the Act).

2. Domestic bribery (private to private)

2.1       Legal framework

Article 357 of the Criminal Act describes Baeim, a criminal breach of fiduciary duties, which makes both the giving and taking of bribes punishable by fines and imprisonment. Article 357(1) states that a person entrusted to administer another’s business and who receives an economic benefit from a third person in response to an improper request concerning his or her duty is to be punished. Article 357(2) states that the third person who provides the economic benefit is also to be punished.

Industry-specific regulations exist to target those industries that have higher instances of bribe-giving and bribe-taking. For instance, the medical and pharmaceutical industry is regulated by Article 23(2) of the Medical Service Act, Article 18 of the Medical Device Act and Article 47 of the Pharmaceutical Affairs Act. The construction industry is regulated by Article 38(2) of the Framework Act on the Construction Industry.

2.2       Definition of private bribery

The Criminal Act defines private bribery as the receipt of economic benefits by an agent or fiduciary where the benefits are related to an improper request regarding the duty of the recipient of the bribe.

A key element of private bribery under the Korean Criminal Act is the requirement of an improper request with regard to the duty of the recipient of the bribe. The Korean courts have been fairly lax in requiring prosecutors to make a satisfactory showing of an improper request. However, the courts will consider factors such as the circumstances surrounding a potential request for a bribe, as well as the type and amount of the bribe sought to determine whether an improper request had been made.

2.3       Consequences of private bribery

The consequence of taking private or commercial bribery as codified in the Criminal Act is prison sentence of up to five years or a fine of up to KRW 10 million. The consequence for giving private or commercial bribery is prison sentence up to two years or a fine of up to KRW 5 million. The bribe itself is confiscated, or if a physical confiscation is not possible, the recipient of the bribe will be disgorged of the monetary equivalent of the bribe.

2.4       Limitation applicable to hospitality expenses (gifts, travel, meals, entertainment, among others)

There are no specific limitations to hospitality expenses; this would be determined on a case-by-case basis depending on the circumstances and the benefits conferred in exchange for the bribes.

3.      Corruption of foreign public officials

3.1       Legal framework

Korea has signed and ratified the OECD Convention on Combatting Bribery of Foreign Public Officials in International Business Transactions and the UN Convention against Corruption.

Bribery of foreign officials is regulated under the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (FBPA), enacted in 1999 pursuant to the OECD Convention. The FBPA is a Korean statute that functions as the Korean law equivalent of the Foreign Corrupt Practices Act of the United States.

Article 357 of the Criminal Act, covering Baeim, may also apply for bribery of foreign officials.

3.2       Definition of corruption of foreign public officials

Article 3.1 of the FBPA defines corruption of foreign public officials as the giving, offering or promising to give a bribe to a foreign public official in connection with the performance of his or her official duties in exchange for an improper advantage in an international business transaction. The bribe may be in the form of money, goods and other pecuniary or intangible benefits that satisfies the wishes of the recipient.

The FBPA provides for an exception in Article 3.2, where certain gifts to foreign public officials are allowed if the laws of the foreign public official’s country allow receiving or giving of such benefits.

3.3       Definition of foreign public official

Article 2 of the FBPA provides a broad definition of a foreign public official, including not only government officials but also individuals performing public functions on behalf of foreign governments and agencies. The definition of foreign public officials extends to employees of public agencies, international organizations and companies controlled by foreign governments.

3.4       Consequences of corruption of foreign public officials

The consequence for individuals found in violation of the FBPA is prison sentence of up to five years or a fine of up to KRW 20 million. However, if the profit gained through bribery exceeds KRW 10 million, the fine may be increased up to double the value of the profit gained.

Consequences for corporate or legal entities found in violation of the FBPA may include a fine of up to KRW 1 billion, in addition to the sanctions imposed on the individual offender. If the profits gained in the commission of the violation exceed a total of KRW 500 million, the fine imposed on the corporate or legal entity may be increased up to double the value of the total profit gained.

3.5       Limitation applicable to hospitality expenses (gifts, travel, meals, entertainment, among others)

There are no specific limitations to hospitality expenses; this would be determined on a case-by-case basis depending on the circumstances and the benefits conferred in exchange for the bribes.

4. Facilitation payments

The Criminal Act does not officially recognize the concept of facilitation payments.

There had been a facilitation payment exception in the FBPA, but this exception was repealed in October 2014. Prior to October 2014, Article 3.2(2) of the FBPA had provided for an instance “[w]here any person promises, gives, or expresses his/her intent to give a small amount of money or any other advantage to a foreign public official, who performs daily routine duties, with intent to encourage the official to perform his/her duties in a fair manner.”

Currently, the prevailing practice of the Prosecutors’ Office and case law recognizes an exception for “socially acceptable” gifts, as long as the amount is small and the gift was provided in normal personal or business relationships.

5. Compliance programs

5.1       Value of a compliance program to mitigate/eliminate the criminal liability for legal entities

For statutes that have a vicarious criminal liability provision (e.g., the FBPA), if a company can satisfactorily show that it had discharged its duty to adequately supervise its employees, it may be exempt from liability for the improper actions of its employees. Even if the company fails to satisfactorily show that it had discharged its duty to adequately supervise its employees, vigorous implementation of compliance programs may act as mitigating circumstance of the corporate’s criminal liability in such case.

5.2       Absence of a compliance program as a crime

Since corporate criminal liability is not recognized according to the Criminal Act, the absence of a compliance program itself is not a crime under the Criminal Act. There are some anti-corruption regulations that require specific types of companies to establish compliance programs and impose sanctions for failing to maintain compliance programs.

5.3       Elements of compliance program

(a) Legal framework

The Korean Criminal Act does not establish a framework for internal compliance programs. However, specific anti-corruption regulations require certain types of established compliance programs.

For example, Article 5 of the Act on Reporting and Using Specified Financial Transaction Information provides that a certain type of financial company or entity is to take prescribed measures to facilitate reporting to prevent money laundering and financing of terrorism through the financial company or entity. The measures may include the appointment of a person to be in charge of reporting duties such as preparation and operation of the procedure and guidelines to be followed, and to be in charge of educating and training the employees.

(b) Recommended practice

Corporate entities should follow the legal framework if specifically applicable regulations exist. In addition to complying with the legal requirements, companies should educate its employees on anti- corruption laws and the consequences of breaking the laws.

Companies should make it a priority to stress on a regular basis the importance of preventing corrupt practices. Companies should also keep records of educational programs that are geared towards preventing corrupt practices and maintain logs of such programs’ attendees.

6. Regulator with jurisdiction to prosecute corruption

The Prosecutors’ Office and the police are the two main agencies that prosecute corruption. They have special investigative departments that perform criminal investigation for corruption. The Anti-Corruption and Civil Rights Commission (ACRC) receives information or complaints filed by whistleblowers and members of the public. For the financial sector, the Financial Supervisory Service (FSS) and the Financial Services Commission (FSC) conduct investigations as administrative agencies, and depending on the findings, may render administrative sanctions on a corporate entity. For rebates in the medical sector, the Korean Fair Trade Commission (KFTC) conducts investigations and may render administrative sanctions on a corporate entity. These agencies may also hand over their findings to the Prosecutors’ Office for criminal prosecution by prosecutors specialized in cases involving bribery and other applicable corruption- related crimes.


SHIN & KIM
8th Floor, State Tower Namsan
100 Toegye-ro, Jung-gu
Seoul 100-052
Korea

Seong-Jin Choi

Seong-Jin Choi’s main areas of practice are anti- corruption, financial crime, anti-money laundering and high-tech crime. As a public prosecutor for over 17 years, he handled a number of investigations and litigations in the areas of fraud, financial crime, high-tech crime, money laundering and anti-corruption. He joined Shin & Kim in 2014.

sjinchoi@shinkim.com

Tel: +82 2 316 4405
Mobile: +82 10 4612 2798

SHIN & KIM
8th Floor, State Tower Namsan
100 Toegye-ro, Jung-gu
Seoul 100-052
Korea

Tak-Kyun Hong

Tak-Kyun Hong’s main areas of practice are anti- corruption and white-collar criminal defence. He has handled a number of investigations and litigations in the areas of fraud, embezzlement, securities-related crimes, technology theft, criminal cartels, criminal extradition and anti-corruption, both as a public prosecutor and as a defence attorney.

tkhong@shinkim.com

Tel: +82 2 316 4085
Mobile: +82 10 5451 0819