Business ethics and anti-corruption laws: South Korea

Contributed by Lee & Ko

South Korea is ranked 37 out of 168 on the TI CPI 2015.

South Korea has signed and implemented the UNCAC and the OECD Anti-Bribery Convention. It is a member of the ADB/OECD Anti-Corruption Initiative for Asia and the Pacific and the FATF.

Key anti-corruption laws
Domestic bribery is primarily governed by the Criminal Code. In addition to the Criminal Code, there are other Korean laws regulating domestic bribery, including laws that are specific to certain industries prone to bribery, rebates or other types of corrupt conduct (e.g. the Pharmaceutical Affairs Act, the Medical Devices Act and the Framework Act on the Construction Industry).

Foreign bribery is primarily governed by the Foreign Bribery Prevention in International Business Transactions Act (the FBPA). The FBPA implements the OECD Anti-Bribery Convention.

Article 357 of the Criminal Code prohibits giving an economic benefit to a person who is entrusted with conducting the business of another person in connection with such person’s duties. Unlike the domestic public official bribery described below, the offence of private commercial bribery requires proving that an improper request was made to the recipient of the bribe. Once private commercial bribery is established, both the recipient and the giver of the bribe can be penalised.

Domestic public official bribery is primarily governed by Articles 129 to 133 of the Criminal Code. A public official is prohibited from receiving an economic benefit in connection with the public official’s duties. The giver of the bribe can also be penalised.

The term ‘public official’ includes persons defined as, or deemed to be, public officials through various statutes:

• The State Public Officials Act and Local Public Officials Act: a public official is defined as any person employed by a state or local government.
• The Act on the Aggravated Punishment of Specific Crimes (the Specific Crimes Act): any senior staff employee of a ‘state-owned’ or ‘state-controlled’ entity, which is listed in the Enforcement Decree of the Act on the Aggravated Punishment of Specific Crimes (the Specific Crimes Act), is deemed to be a public official.
• The Act on Administration of Public Entities: any director, officer or employee of a ‘public corporation’ and ‘quasi-government entity’ is deemed to be a public official. A list of the public corporations and quasi-government entities is updated and issued annually by the Ministry of Strategy and Finance.
• Other statutes: any individual performing a certain public function delegated by a state or local government is also deemed to be a public official pursuant to various other statutes.

Unlike private commercial bribery, establishing public official bribery does not require showing that an improper request was made to the recipient of the benefit. It is sufficient that an economic benefit received by a public official is in connection with such public official’s duties. In determining whether an economic benefit received is in connection with a public official’s duties, the Supreme Court of Korea has considered not only the duties of the public official as prescribed in the applicable laws, but also the de facto duties and the duties of the division to which the public official belongs. However, if giving a gift or other economic benefit under the circumstances is consistent with a social custom or courtesy or if a benefit is given because of a personal relationship between the public official and the giver, such benefit is deemed not to be in connection with the public official’s duties.

Article 3 of the FBPA prohibits any person from promising, offering or disclosing an intention to offer a bribe to a foreign public official (including any person holding a judicial office of a foreign government, exercising a public function for a foreign government or public international organisation, or working for a public enterprise carrying out a specified public function), in connection with the public official’s duties in an international commercial transaction, for the purpose of gaining an improper benefit.

The criminal laws of South Korea apply to:

• both Korean nationals and foreign nationals who commit crimes within the territory of South Korea (Article 2, Criminal Code) − the prevailing view is that a crime is ‘committed within the territory of South Korea’ if either any part of the criminal act occurs in South Korea or its effects are felt within South Korea;
• all Korean nationals who commit crimes outside the territory of South Korea (Article 3, Criminal Code); and
• foreign nationals who commit crimes outside the territory of South Korea, if and only if such crime is against South Korea or its nationals, provided that the criminal laws of South Korea shall not apply if the act is lawful under the laws of the nation in which the act occurred (Article 6, Criminal Code).

Bribery is considered a crime against South Korea and its nationals. Because of this, a foreign national can be held liable for his or her actions under the bribery offences in the Criminal Code, even if those actions occurred outside South Korea.

In South Korea, corporations can be criminally punished only if the relevant laws expressly provide for vicarious liability. The Criminal Code is silent on the issue of vicarious liability. Thus, a corporation cannot be held liable under the Criminal Code. On the other hand, Article 4 of the FBPA and certain other statutes which regulate specific industries (e.g. the Medical Devices Act, the Pharmaceutical Affairs Act, the Framework Act on the Construction Industry and the Housing Act) provide for vicarious liability for corrupt conduct.

Even if vicarious liability is expressly provided for in the applicable laws, corporations cannot be found liable for the actions of its employees if the corporation can demonstrate that it discharged its duty to adequately supervise those employees. Therefore, in practice, an effective compliance program may go some way to acting as a defence to liability claims against corporations for the actions of their employees.

The Criminal Code does not expressly provide for any defences of extortion, duress or intimidation for bribery offences. Theoretically, if an economic benefit is provided due to extortion and not in connection with the recipient’s duties, then bribery cannot be established. In practice, it is unlikely that such a defence will be accepted by courts as a defence to a domestic bribery offence under the Criminal Code.

The FBPA contains an exception – payments to foreign government officials that are lawful under the applicable laws of the foreign country would not constitute a foreign bribery offence under the FBPA.

Facilitation payments to domestic public officials are not permitted under the Criminal Code.

The FBPA used to permit facilitation payments; however such defence was deleted from the FBPA by an amendment passed in October 2014, in response to public criticism that companies should eradicate facilitation payment practices.

There is no minimum threshold for a bribe under South Korea’s anti-corruption laws.

With respect to public official bribery, there are cases in which small gifts to public officials were found to be in violation of the public official bribery provision of the Criminal Code. To establish public official bribery, it is sufficient to show that a public official received a gift of any value in connection with the public official’s duties. However, if a gift given to a public official is the type of gift that is customarily given under the circumstances, or if a gift is given because of a personal relationship between the public official and the giver, such gift is not deemed to be in connection with the public official’s duties.

The Code of Conduct for Government Officials, which prescribes the standard of conduct for public officials, prohibits public officials from accepting any gift or entertainment in excess of KRW 30,000 (approximately US$30) or a cash gift for family events (eg, wedding, funeral) in excess of KRW 50,000 (approximately US$50). Courts might consider these thresholds in determining whether a gift at issue was given pursuant to a social custom and thus not in connection with the public official’s duties. However, mere compliance with the Code of Conduct will not preclude a finding of bribery if all the requisite elements are met.

As discussed above, Korean jurisprudence on vicarious liability is that a corporation cannot be criminally punished as a principal of crime. A corporation can be penalised only when vicarious liability is expressly provided for in the relevant criminal law. The Criminal Code is silent on vicarious liability; thus corporations cannot be held criminally liable for domestic bribery under the Criminal Code.

On the other hand, the FBPA and certain industry statutes that prohibit corrupt conduct in specific industries (e.g. the Medical Devices Act, the Pharmaceutical Affairs Act, the Framework Act on the Construction Industry and the Housing Act) expressly provide for vicarious liability. Pursuant to the FBPA and such statutes, a corporation can be held criminally liable for bribery committed by its agent or employee. For the purpose of determining vicarious liability, the term “employee” is broadly defined to include: (a) any person who has entered into an employment agreement with the corporation; and (b) any person who works directly or indirectly for the corporation and is controlled and supervised by the corporation.

Even if vicarious liability is expressly provided for, corporations cannot be held strictly liable. A corporation will not be found liable for the actions of its employees if the corporation can demonstrate that it discharged its duty to adequately supervise those employees.

Directors and officers of a corporation cannot automatically be held liable for bribery committed by employees working for them. However, directors and officers who consented to or approved the corrupt acts of their employees may be held liable for conspiracy to commit bribery.

Violation of the domestic private commercial bribery offence under the Criminal Code:

• A recipient of a bribe may face imprisonment for up to five years or a fine of up to KRW 10 million (approximately US$9,700) (Article 357(1), Criminal Code).
• A giver of a bribe may face imprisonment for up to two years or a fine of up to KRW 5 million (approximately US$4,800) (Article 357(2), Criminal Code).

Violation of the domestic public official bribery offence under the Criminal Code:

• up to five years’ imprisonment for a public official who receives a bribe (Article 129(1), Criminal Code);
• up to five years’ imprisonment or a fine of up to KRW 20 million (approximately US$20,000) for a giver of a bribe (Article 133(1), Criminal Code); and
• where the amount of the bribe received is KRW 30 million or more (approximately US$29,000), an aggravated penalty of imprisonment of 5 years or more to life imprisonment (depending on the amount of the bribe) for a public official who receives a bribe (Article 2(1), Specific Crimes Act).
  • Also, under Article 2(2) the Specific Crimes Act, an additional fine of 2 to 5 times the amount of the bribe is additionally imposed for a public official who receives a bribe (regardless of the amount of the bribe).

Violation of the foreign public official bribery offence under the FBPA:

• where the benefit gained from the bribe is KRW 10 million or less (approximately US$9,700), up to 5 years’ imprisonment or a fine of up to KRW 20 million (approximately US$20,000) for an individual giver of a bribe (Article 3(1), FBPA);
• where the benefit gained from the bribe exceeds KRW 10 million (approximately US$9,700), up to 5 years’ imprisonment or a fine of up to twice the value of the benefit for an individual giver of a bribe (Article 3(1), FBPA);
• where a corporation is found liable for its employee’s violation of the FBPA and the benefit gained from the bribe is KRW 500 million or less, a fine of up to KRW 1 billion (Article 4, FBPA); and
• where a corporation is found liable for its employee’s violation of the FBPA and the benefit gained from the bribe is more than KRW 500 million, a fine of up to twice the value of the benefit (Article 4, FBPA).

The National Policy Agency and the Prosecutors’ Offices are the primary enforcement agencies. Bribery and corruption are an enforcement priority of the Special Investigation Department of each Prosecutors’ Office.

For investigation of violations of anti-corruption law in certain specific industries such as the pharmaceutical industry, the prosecution may also form a joint task force with the relevant administrative agencies (e.g. the Ministry of Food and Drug Safety).

The primary anti-money laundering laws are the Act on Regulation of Punishment of Criminal Proceeds Concealment (the Criminal Proceeds Act) and the Act on Reporting and Using Specified Financial Transaction Information (the Financial Transaction Reporting Act).

The Criminal Proceeds Act is intended to prohibit the concealing of proceeds of crimes. The Criminal Proceeds Act imposes on people working for financial institutions the obligation to report any transaction such person knows to involve financial assets that are proceeds of crimes (Article 5).

The Financial Transaction Reporting Act is intended to prohibit money laundering and financing of terrorism. For this purpose, the Financial Transaction Reporting Act requires that financial institutions: (a) report suspicious transactions; (b) report high-value cash transactions; and (c) conduct customer due diligence. For customer due diligence, a financial institution is required to verify the name, address and contact information when a customer conducts a financial transaction (Article 5). If it is suspected that a customer may be engaged in money laundering, a financial institution is also required to verify the identity of the customer and confirm the purpose of the transaction.

Additionally, the Real Name Financial Transaction and Guaranty of Secrecy Act prohibits opening or maintaining of anonymous accounts or accounts under fictitious names and requires financial institutions to check and verify the real name of customers.

In the anti-corruption context, a whistleblowing program is established pursuant to the Act on the Prevention of Corruption and the Establishment and Management of the Anti-Corruption and Civil Rights Commission (the AntiCorruption and Civil Rights Commission Act), which was first introduced in 2001. Anyone can report, on an anonymous basis, any corrupt act of a public official. Whistleblowers may be entitled to monetary rewards if revenues of government entities increase as a result of whistleblowing. The Anti-Corruption and Civil Rights Commission Act also protects whistleblowers from retaliatory personnel actions.

The Personal Information Protection Act, together with the Protection of Communications Secrets Act and the Act on Promotion of Information and Communications Network Utilisation and Information Protection etc., provide overarching protection of personal information.

An enforcement authority can collect personal information in connection with a criminal investigation with consent of the person subject to the investigation. Otherwise, a warrant needs to be obtained.

Collecting personal information in connection with an internal investigation requires prior consent of the person subject to the investigation.

South Korea does not recognise the concept of attorney client privilege or work product protection. However, there are other laws that afford certain protection. For example, the Attorney-At-Law Act protects the confidentiality of communications between an attorney and his or her client, and the Criminal Procedures Act provides that an attorney cannot be compelled to testify, in a criminal proceeding, to clients’ confidential information obtained during the course of the attorney’s representation of such clients.

Contacts

H.K. Helen Sohn, Partner
Lee & Ko
helen.sohn@leekok.com

Taek Rim (Terry) Oh, Partner
Lee & Ko
tro@leeko.com