Financial crime in South Korea: overview

A Q&A guide to financial and business crime in South Korea.

The Q&A gives a high level overview of matters relating to corporate fraud, bribery and corruption, insider dealing and market abuse, money laundering and terrorist financing, financial record keeping, due diligence, corporate liability, immunity and leniency, and whistleblowing.

To compare answers across multiple jurisdictions, visit the Financial and Business Crime Country Q&A tool.

This Q&A is part of the multi-jurisdictional guide to financial and business crime law. For a full list of jurisdictional Q&As visit www.practicallaw.com/corporatecrime-guide.

Contents

Fraud

Regulatory provisions and authorities

1. What are the main regulatory provisions and legislation relevant to corporate or business fraud?

The Ministry of Justice (MOJ), District Prosecutor's Office (DPO) (under the supervision of the Supreme Prosecutor's Office) and the police are responsible for enforcing the following main regulatory provisions relating to various types of corporate or business fraud:

  • The Criminal Code.

  • The Criminal Procedure Act.

  • The Act on the Aggravated Punishment for Specific Economic Crimes (Specific Economic Crimes Act or SECA).

  • The Act on Special Cases concerning the Confiscation and Return of Property Acquired through Corrupt Practices (Corrupt Practices Property Act or CPPA).

In addition, responsibility for the enforcement of the Financial Investment Services and Capital Markets Act (FSCMA) rests with the Financial Services Commission (FSC). The Unfair Competition Prevention and Trade Secret Protection Act (UCPA) rests with the Korean Intellectual Property Office (KIPO).

For more information see box: The regulatory authorities.

Offences

2. What are the specific offences that can be used to prosecute corporate or business fraud?

Fraud

Examples of offences found in various statutes regarding fraud include the following:

  • Defrauding others by taking property or obtaining a pecuniary advantage (Article 347(1), Criminal Code). Attempted fraud is also punishable (Article 352, Criminal Code).

  • Unfair trading practices (Article 178(1), Financial Investment Services and Capital Markets Act) such as using:

    • unfair means;

    • false descriptions;

    • misrepresentation or omission of material facts;

    • inaccurate market prices.

  • Infringement of trade secrets through deceptive means (Article 18, Unfair Competition Prevention and Trade Secret Protection Act).

Embezzlement and breach of trust

The embezzlement of another's property and the obtaining of pecuniary advantage in the course of administering another's business (that is, a breach of trust) and attempts to do so are prohibited (Articles 355, 356 and 359, Criminal Code).

The above offences are not strict liability offences. According to court precedent, intent is an element of fraud, although damage is not. Attempts of the above offences are also punishable.

For information regarding corporate liability, see Question 35.

Enforcement

3. Which authorities have the powers of prosecution, investigation and enforcement in cases of corporate or business fraud? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The District Prosecutor's Office (DPO) has the powers of prosecution, investigation and enforcement of all criminal cases. The Police are supervised by the DPO in conducting criminal investigations. Neither the courts nor regulators have extraterritorial jurisdiction for undertaking investigations in relation to fraud, although they do have jurisdiction for prosecuting Korean nationals who have committed fraud abroad. Korea has entered into extradition treaties and/or mutual legal assistance treaties with various countries. As a general matter, the DPO and the Supreme Prosecutors Office also co-operate with overseas authorities in terms of evidence sharing and location of assets.

For more information on the DPO and the Supreme Prosecutors Office, see box: The authorities.

The Financial Services Commission (FSC), with assistance of the Financial Supervisory Service (FSS), has the power to investigate unfair trading violations for regulatory purposes. The FSC refers the case to the DPO for criminal prosecution.

Prosecution powers

Only the DPO has the exclusive power to prosecute a criminal case. The Police and the FSC can only refer a case to the DPO for prosecution after investigation.

Powers of interview

The Police, the FSC and the DPO may summon suspects and witnesses for questioning. The Police and the DPO may obtain warrants to compel appearance for an interview related to a criminal investigation; while the DPO may apply for an arrest warrant on its own, the Police needs DPO supervision and approval in applying for an arrest warrant.

To obtain an arrest warrant, the DPO must apply to a competent court. The court will hold a hearing as to whether detaining the suspect is necessary, taking into account factors such as:

  • Probable cause.

  • Risk of flight.

  • Risk of destruction or tampering of evidence.

Powers of search/to compel disclosure

The police or DPO can apply for a warrant to conduct a search and seizure to obtain relevant evidence (Articles 106, 109 and 113, Criminal Procedure Act). To obtain a search warrant, the prosecutor must apply to the relevant court, upon which the court will consider probable cause, the risk of destruction/tampering of evidence and the necessity of such evidence.

In connection with their regulatory investigation, the FSC can request any person concerned to submit a report or materials for reference, or require the FSS to inspect accounting books, documents and other materials (Article 426(1), FSCMA). The FSC can also (Article 426(3), FSCMA):

  • Provisionally keep in custody accounting books, documents, and other materials.

  • Enter an office or place of business of any relevant person and conduct an investigation of their business affairs, account books, and other materials.

Powers to obtain evidence

As stated in the above Powers of search/to compel disclosure, the police or DPO can secure relevant evidence through enforcement of a search and seizure warrant to conduct a raid for the collection of evidence. FSC and FSS also have the power to obtain evidence during the course of their regulatory investigations into unfair trading activities.

The authorities may also use the mutual legal assistance treaties entered into with several countries to obtain evidence, and sometimes cooperate with corresponding agencies in foreign countries to obtain information related to a target investigation.

Power of arrest

As stated in the above Powers of interview, the DPO and the police (upon supervision of the DPO) may request a competent court to issue an arrest warrant. On the other hand, regulatory investigations such as those conducted by the FSC do not entail the power to arrest.

Court orders or injunctions

More recently, Korean courts have rendered freezing orders against assets held by indicted defendants upon request by the DPO for provisional attachment to confiscate ill-gotten gains from the crime. The courts tend to issue freezing orders within a fairly short time, and more recently, there have been cases when the court issued the freezing order one or two days after the DPO filed its request.

 
4. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

DPO has an exclusive right to make a decision for indictment and to determine the basis for such a decision. In so doing, the DPO considers the totality of circumstances surrounding the relevant crime and generally observes internal guidelines.

Conviction and sanctions

5. What are the sanctions for participating in corporate or business fraud?

Civil/administrative proceedings or penalties

Civil/administrative proceedings include:

  • Compensation. Where business fraud relates to a pending government contract, the contract can be terminated and the government can file a separate civil claim for damages against the contractor entity under the terminated contract.

  • Debarment. Under the rules governing government contracts, parties who used fraud, unfair activities, or other unethical means will be debarred from bidding for government contracts for a period ranging from one month to two years.

Criminal proceedings

Fraud. Individuals who are found liable for fraud are punishable by imprisonment for up to ten years or a fine of up to KRW20 million (Article 347, Criminal Code). However, when the profits gained through fraud are KRW500 million or more, individuals may be subject to aggravated sanctions:

  • A prison term of three years or more if profits gained through the fraud is KRW500 million or more but less than KRW 5 billion;

  • A prison term of five years to life imprisonment if profits gained through the fraud is KRW5 billion or more.

In addition to the prison term, the individual offender may also be fined up to the amount of profit gained (Article 3(2), SECA). Finally, any individual offender found guilty under Article 3 of the SECA will be prohibited from being employed by certain institutions for a stated period of time (Article 14, SECA).

"Unfair trading" under Article 178(1) of the FSCMA is punishable by imprisonment of up to ten years or by a fine of up to KRW500 million (Article 443, FSCMA). An individual offender who receives a prison sentence can also be subject to a fine of up to three times the amount of profit gained (Article 447, FSCMA). Finally, if a corporation employing the relevant individual failed to exercise due care or diligently supervise the relevant business to prevent occurrence of such violation, the corporation will be fined under the same articles, independently of sanctions imposed on the offender (Article 448, FSCMA).

Any person who has acquired or used trade secrets for the purpose of making an illegal profit or causing damage to an enterprise or has leaked trade secrets to any third party can be punished by either (Article 18, Unfair Competition Prevention and Trade Secret Protection Act) (UCPA):

  • Imprisonment for up to five years (ten years for foreign leakage).

  • A fine equivalent to the amount ranging from not less than twice to not more than ten times the amount of profits.

A company can be held criminally liable for violations of the UCPA committed by its representatives, officers, employees or agents during the course of its business.

Embezzlement and breach of trust. Individuals found guilty of embezzlement and breach of trust are punishable by imprisonment for up to five years or a fine of up to KRW15 million (Article 355, Criminal Code). The aggravated punishments referred to in Article 3 of the SECA in respect of fraud offences also apply. Property or profits gained as a result of violation of Article 355 of the Criminal Code can be confiscated and may be returned to the injured party under the Corrupt Practices Property Act (CPPA).

Right to bail. A suspect can request for release before the indictment, and the defendant of a criminal trial can apply for release on bail after indictment. Depending on the specific facts of the case, the court may grant bail, usually within 4-5 days of the request for bail, after seeking the opinion of the District Prosecutor's Office.

Penalties. The Sentencing Commission under the Supreme Court of Korea has issued sentencing guidelines for certain crimes. The sentencing guidelines, which were prepared in consideration of various factors including associated loss, nature of crime, and remorse of the defendant, are not binding, but the responsible court must provide grounds for sentencing if the sanction falls outside of the range of punishment provided under the sentencing guidelines.

Civil suits

Parties injured by business fraud can bring civil lawsuits against the individual and (if the employee of the company causes damages in connection with his work) the company for (under the Civil Code):

  • Contract liability (Article 390, Civil Code).

  • Tort liability (Article 750, Civil Code).

In addition, injured individuals can also recover their losses under Article 6 of the CPPA, which provides that confiscated property can be returned to the injured parties. Punitive damages are not recognised under Korean law.

Under Korean law, only limited types of class actions are permitted for claims regarding corporate or business misrepresentations in connection with certain securities-related matters.

Safeguards

6. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

A suspect who is subject to a criminal investigation has the right to retain counsel under the Criminal Procedure Act. However, a person who is not yet identified as a suspect, or any person who is subject to an administrative investigation, does not have such rights.

For unlawfully obtained evidence, the Criminal Procedure Act explicitly states that any evidence obtained in violation of due process shall not be admissible in a criminal trial (Article 308-2, Criminal Procedure Act).

 

Bribery and corruption

Regulatory provisions and authorities

7. What are the main regulatory provisions and legislation relevant to bribery and corruption?

The main rules governing the bribery of domestic government officials are stipulated in the following laws and regulations:

  • The Criminal Code.

  • The Act Concerning Aggravated Punishment of Specific Crimes (Specific Crimes Act or SCA).

  • The Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Specific Economic Crimes Act or SECA).

  • The Act on the Creation and Operation of the Anti-Corruption and Civil Rights Commission and the Prevention of Corruption (Anti-Corruption Act).

  • The Public Officials' Code of Conduct for Maintenance of Integrity (Code of Conduct).

  • The Act on Prohibition of Improper Solicitation and Provision/Receipt of Money and Valuables (Anti-Graft Act).

In addition, some industries (including the pharmaceutical and medical device industries) have industry-specific voluntary standards or guidelines.

In respect of bribery of foreign public officials, Korea has enacted the Foreign Bribery Prevention in International Business Transactions Act (FBPA), which includes provisions similar to the US Foreign Corrupt Practices Act, under the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention).

For more information on the regulatory authorities, see box: The regulatory authorities (www.practicallaw.com/a317546).

 
8. What international anti-corruption conventions apply in your jurisdiction?

Korea has signed and ratified the OECD Convention and the UN Convention against Corruption.

Offences

9. What are the specific bribery and corruption offences in your jurisdiction?

Foreign public officials

Under the Foreign Bribery Prevention in International Business Transactions Act (FBPA), a crime of bribery vis-à-vis a foreign official is established when any Korean national intentionally promises, gives or offers a bribe to a foreign public official in connection with the performance of his official duties in order to obtain an improper advantage in an international business transaction. Any foreign nationals engaged in the bribery of a foreign public official within the territory of Korea are also subject to punishment under the territoriality principle in the FBPA.

Corporate entities can be held liable when its representative or agent commits a foreign bribery offence in connection to its business.

Domestic public officials

Both the offering to and taking of bribes by a domestic public official in connection with official duties are prohibited (Articles 129 and 133, Criminal Code). Both the giver and receiver of bribes can be punished. Only natural persons are subject to criminal liability for the charge of bribery under the Criminal Code.

See below, Anti-Graft Act for information on the new legislation concerning certain benefits to domestic public officials.

Commercial bribery

Article 357 of the Criminal Code prohibits the giving of economic benefits to a person who is entrusted with conducting the business of another person, if such benefits are related to an improper request made in connection with the duties of the person in question. The Criminal Code also imposes criminal liability on the recipient of commercial bribes.

Bribery is not a strict liability offence. Intent is required for both public bribery and commercial bribery.

Anti-Graft Act

While the anti-bribery provisions under the existing Criminal Code do not impose liability on corporations for bribes made by employees, the Anti-Graft Act imposes corporate criminal liability for the acts of a company's employees, unless it can be shown that the corporation exerted due care and supervision to prevent such misconduct. Contrary to the official bribery provisions in the Criminal Code which require the authorities to prove that a payment or benefit was provided/received in connection with the receiving official's duties, under the Anti-Graft Act, imprisonment or criminal fines can be imposed without showing such link to the public official's duties, as long as the value of benefits received by the public official exceeds a certain threshold (KRW1 million per instance, or KRW3 million in yearly aggregate). For amounts not exceeding those thresholds, if there is a link to the public official's duties, administrative fines of up to two to five times the conferred amount would be imposed by the court. The Anti-Graft Act also prohibits the making of an "improper request" (that is, causing public officials to violate laws or to go beyond their position or authority), irrespective of whether such request involves any payment or provision of benefits.

Corporate Liability

See Question 35.

Defences

10. What defences, safe harbours or exemptions are available and who can qualify?

Defences

Article 3(2) of the Foreign Bribery Prevention Act (FBPA)provides a defence if the law of the foreign public official's country permits payment that would otherwise be considered a bribe under the FBPA. A corporate entity can avoid strict liability if it has paid due attention or exercised proper supervision to prevent violation of the FBPA by its representatives, agents or employees (Article 4, FBPA).

Under the Criminal Code, benefits provided not in connection with the official duties of the relevant public official would not constitute a crime of bribery.

Indirect bribery

The Criminal Code prohibits aiding or abetting, and sanctions a person who, for the purpose of committing bribery, delivers money or goods to a third party, or receives a delivery with knowledge of its nature (Article 133, Criminal Code).

Facilitation payments

The Criminal Code and the Specific Crimes Act (SCA) do not provide an exception for facilitation payments. Domestic bribery laws may apply regardless of the value of conferred benefits because there is no "threshold" set out under the relevant laws (except for the Anti-Graft Act).

Travel, entertainment, gifts and gratuities

The Anti-Graft Act prohibits any type of benefit to public officials (regardless of link to the public official's duties), if it exceeds KRW1 million for a one-time benefit, or KRW3 million in yearly aggregate, unless exceptions provided under the Anti-Graft Act apply. Under those exceptions, meals up to KRW30,000, gifts up to KRW50,000, and money or other valuables for weddings and funerals up to KRW100,000 are allowed. Travel accommodations, including transportation, lodging and meals, which are provided uniformly to all participants by the host of an official event related to the duties of the participating officials may also be allowed, as long as such benefits are considered to be "within the bounds of social custom."

 
11. Can associated persons (such as spouses) and agents be liable for these offences and in what circumstances?

Associated persons or agents can be liable for aiding and abetting or conspiracy under the Criminal Code.

Enforcement

12. Which authorities have the powers of prosecution, investigation and enforcement in cases of bribery and corruption? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The District Prosecutor's Office (DPO) and police have the power to enforce the Korean Criminal Code, the Specific Crimes Act, the AECA, the Anti-Corruption Act, and the Anti-Graft Act.

Korean nationals are subject to prosecution even if the offence took place outside Korean territory. A foreign individual may be prosecuted even if the act of bribery of a Korean public official took place outside Korea.

For a description of the application process for common forms of investigation powers, see Question 3 (www.practicallaw.com/9-502-3233).

For more information on the DPO, see box: The authorities.

Prosecution powers

See Question 3.

Powers of interview

See Question 3.

Powers of search/to compel disclosure

See Question 3.

Powers to obtain evidence

See Question 3.

Power of arrest

See Question 3.

Court orders or injunctions

See Question 3.

 
13. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

Conviction and sanctions

14. What are the sanctions for participating in bribery and corruption?

Civil/administrative proceedings or penalties

Where the bribery or corruption relates to a government contract, the relevant government entity may have a separate civil claim for damages regarding the relevant contract. Other forms of civil claims depend on the facts involved. For example, corruption in the context of a public bidding could give rise to a civil claim by the customer or bidders losing.

Criminal proceedings or penalties

Right to bail. See Question 3.

Penalties. Criminal liability differs depending on the type of the bribery concerned:

  • Bribery of foreign officials. Under the Foreign Bribery Prevention Act (FBPA), individuals can be subject to imprisonment for up to five years and/or a fine of up to KRW20 million. If the profit obtained through the offence exceeds a total of KRW10 million, the fine can be increased to up to twice the amount of the profit.

Corporate entities may be liable to pay a fine of up to KRW1 billion in addition to any penalties imposed on the individual offender. If the profits that were obtained through the offence exceed a total of KRW500 million, the legal entity can be subject to a fine of up to twice the amount of the total profit.

  • Bribery of domestic officials. Individuals can be subject to imprisonment up to five years and/or fines of up to KRW20 million under the Criminal Code. Under the Specific Crimes Act (SCA), a public official who is the recipient of a bribe is liable to receive elevated sanctions if the amount of the bribe involved is substantial:

    • between KRW30 to KRW50 million: five years' imprisonment or more;

    • between KRW50 to KRW100 million: seven years' imprisonment or more;

    • over KRW100 million: ten years' imprisonment or more (including life sentence).

Under the Anti-Graft Act, corporate entities can be found vicariously liable and become subject to a criminal fine up to KRW30 million unless the corporate entity proves that it exerted due care and supervision to prevent the wrongdoing.

  • Commercial bribery. The giver of a bribe to a private sector employee can receive a fine of up to KRW5 million or imprisonment for up to two years. The recipient is subject to a fine of up to KRW10 million or imprisonment for up to five years. Corporate entities do not become subject to sanctions for commercial bribery.

Sentencing guidelines.

See Question 5.

Safeguards

15. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

Tax treatment

16. Are there any circumstances under which payments such as bribes, ransoms or other payments arising from blackmail or extortion are tax-deductible as a business expense?

The Corporate Income Tax Law and the Individual Income Tax Law prohibit the deductibility of domestic and foreign bribes. In addition, the Punishment of Tax Evaders Act (PTEA) imposes criminal liability on a person or company for evading full payment of corporate tax due by falsifying bribes as a proper business expense.

 

Insider dealing and market abuse

Regulatory provisions and authorities

17. What are the main regulatory provisions and legislation relevant to insider dealing and market abuse?

The FSCMA governs insider trading activities in Korea. Under the FSCMA, the insider trading rules apply to "insiders" (as defined by FSCMA) and "tippees" (see Question 19) using, or causing others to use, material information, not disclosed to the public of a listed company (including a company which would be listed within six months after the misconduct) in connection with the trading of securities (for example stocks, convertible bonds, bonds with warrant, exchangeable bonds and depositary receipts).

The District Prosecutor's Office (DPO) is responsible for criminal investigation and prosecution. The DPO can investigate an allegation of insider trading referred to it by any person or at its own discretion. Typically, the DPO investigates instances of insider trading that are referred to it by the Securities and Futures Commission (SFC), itself acting on the guidance of the Financial Supervisory Service (FSS).

For more information on the DPO, see box: The regulatory authorities (www.practicallaw.com/a317546).

Offences

18. What are the specific offences that can be used to prosecute insider dealing and market abuse?

A person is in violation of the insider trading rule if he or she is an insider or a tippee, with "material non-public information" (MNPI) and has used the MNPI in connection with trading of securities or other transactions (Article 174, FSCMA). These requirements are examined in detail below:

Insiders or tippees

Insiders are any persons or entities who have acquired or are otherwise in possession of MNPI in respect of any of the following categories (or any person who fell within any of the categories within the previous year):

  • A listed company (including its affiliates), its officers, employees and agents in connection with their duties.

  • A principal shareholder of a listed company in exercising their shareholder rights (including their agents, business representatives or other employees).

  • A person (a listed company's agents, business representatives or other employees) who has the authority to issue permissions, approvals or instructions with respect to, or supervise, the listed company in accordance with laws and regulations in connection with the exercise of their authority.

  • A person (see above) who has entered into or negotiated a contract with the company in connection with its negotiation, execution or performance.

Tippees are those who have directly received MNPI from insiders.

While a second tippee will not become subject to criminal prosecution under the FSCMA, they may be subject to administrative fines upon regulatory investigation conducted by the FSC and the FSS under the amended FSCMA.

Possession and use of MNPI

The insider trading rule applies to insiders or tippees who acquire MNPI in relation to:

  • The business affairs of a listed company.

  • The tender offer of shares of a listed company.

  • A large scale purchase or sale of shares of a listed company.

To commit the offence, an insider must use or cause another person to use MNPI in connection with the trading of, or other similar transactions involving, the securities of a listed company.

Damages must be proved for a civil claim, but criminal liability can be recognised without establishing damages.

Corporate liability

See Question 35.

Defences

19. What defences, safe harbours or exemptions are available and who can qualify?

There are no safe harbours for insider trading under the Financial Investment Services and Capital Markets Act or its subordinate regulations. While entering into a confidentiality agreement with respect to material non-public information can support an argument that there was no intent to commit insider trading, it would not be regarded as conclusive evidence to deny establishment of insider trading offense.

Enforcement

20. Which authorities have the powers of prosecution, investigation and enforcement in cases of insider dealing and market abuse? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The initial investigation for an insider trading case is usually conducted by one of the investigation departments of the FSS. The case is then reviewed and assessed by the SFC. If it concludes that the suspect is innocent, the SFC can close the case without further action. In practice, the SFC tends to refer cases to the DPO for further investigation. If the SFC concludes that the suspect has committed a crime, the SFC can file a criminal complaint to the DPO. If the SFC does not find strong evidence to show that there was a crime but believes that the case needs to be further investigated, it can either request the DPO to conduct an investigation without filing a criminal complaint or send the reference material to it without a request for an investigation. The DPO may apply for a warrant to conduct a search and seizure raid to obtain relevant evidence.

The Financial Investment Services and Capital Markets Act (FSCMA) applies to activities conducted in a foreign country if the effects of the activities extend to the territory of Korea. Therefore, the insider trading rules can have extra-territorial application to the extent the activity at issue has effects reaching inside Korea.

There is no specific form of court order or injunction applicable.

For more information on the DPO see box: The authorities.

Prosecution powers

See Question 3.

Powers of interview

See Question 3.

Powers of search/to compel disclosure

See Question 3.

Powers to obtain evidence

See Question 3.

Power of arrest

See Question 3.

Court orders or injunctions

See Question 3.

 
21. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

See Question 4.

Conviction and sanctions

22. What are the sanctions for participating in insider dealing and market abuse?

Civil/administrative proceedings or penalties

The FSC may investigate certain entities regulated by the FSCMA (for example, financial investment companies, private equity funds, collective investment schemes and securities finance companies), for compliance with the provisions of the FSCMA, and issue administrative sanctions, including cancellation of their licence and imposition of administrative fines.

Criminal proceedings

Right to bail. See Question 3.

Penalties.

Insider trading is subject to a criminal penalty of imprisonment for up to ten years and/or a fine of up to KRW500 million. The fine must not exceed an amount equivalent to three times the profit accrued or the loss avoided through insider trading, if the amount equivalent to three times the profit accrued or the loss avoided exceeds KRW500 million (Article 443(1), FSCMA).

In addition, the term of imprisonment can be modified if the profit accrued or the loss avoided through insider trading exceeds KRW500 million:

  • If the profit gained or loss avoided is KRW5 billion or greater, a minimum of five years to a maximum of life.

  • If the profit gained or loss avoided is KRW500 million or more but less than KRW5 billion, a minimum of three years.

A corporation may be subject to corporate liability for the insider trading violations of its employee, if it failed to exercise due care to or diligently supervise the business to prevent the occurrence of such a violation (Article 448, FSCMA).

Sentencing guidelines. See Question 5.

Civil suits

(Brought by parties suffering damages) Are punitive damages available?

Any person who violates the insider trading regulations is liable to pay damages to a person who suffers as a result of the purchase of securities and sale or other transaction (Article 175, FSCMA). In addition, a person who suffers damages arising from insider trading can institute legal proceedings based on general tort principles and can also proceed under a class action. Punitive damages are not available in Korea.

Safeguards

23. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?

See Question 6.

 

Money laundering, terrorist financing and financial/trade sanctions

Regulatory provisions and authorities

24. What is the main legislation and regulatory provisions relevant to money laundering, terrorist financing and/or breach of financial/trade sanctions?

Money laundering

The main regulatory provisions relating to money laundering include:

  • The Act on Reporting and Use of Information Concerning Certain Financial Transactions (Financial Transactions Reporting Act (FTRA)).

  • The Act on Regulation and Punishment of Concealment of Crime Proceeds (Proceeds of Crime Act (POCA)).

  • The Act on Prohibition of Financing of Terrorism (Terrorism Financing Act (TFA)).

The FTRA and POCA are regulated by the Financial Intelligence Unit (FIU) within the FSC.

In addition, the Act on the Prevention of Illegal Drug Trafficking (Drug Trafficking Act (DTA) is regulated by the Ministry of Justice, DPO and the police.

The Regulation on Prevention of Money Laundering and Prohibition of Financing for offences of Public Intimidation was enacted to supplement the FTRA. Non-compliance with this regulation is regarded as a violation of the FTRA.

For more information on the regulatory authorities, see box: The regulatory authorities (www.practicallaw.com/a317546).

Terrorist financing

The main regulatory provisions relating to terrorist financing include the TFA which is regulated by the FIU.

Financial/trade sanctions

See above, Money laundering and Terrorist financing.

Offences

25. What are the specific offences that can be used to prosecute money laundering, terrorist financing and breach of financial/trade sanctions?

All the below offences require proof of intent.

Money laundering

Concealment of illegal profits. The offence of concealment of illegal profits is concealing or disguising the nature, location, origin, or ownership of illegal profits to hinder the detection of narcotics crimes. Any attempt or conspiracy to commit the offence is also punishable (Article 7, DTA).

Concealment and disguise of criminal proceeds. The concealment and disguising of criminal proceeds refers to disguising the acquisition or disposition of criminal proceeds and their origin including criminal proceeds legitimately acquired. Both attempts and conspiracy to disguise are punishable (Article 3, POCA).

Giving and receiving proceeds of crime

The offence of giving and receiving proceeds of crime is knowingly accepting the criminal proceeds (Article 4, POCA).

Terrorist financing

Terrorist financing is the provision or attempted provision of funds to a person knowing that the person has been designated as a person whose financial transactions are restricted. It includes raising funds for the purpose of benefitting a person related to the financing of terrorism (Articles 4 and 5-2, TFA).

Financial/trade sanctions

See above, Money laundering and Terrorist financing.

Corporate liability

SeeQuestion 35.

Defences

26. What defences, safe harbours or exemptions are available and who can qualify?

Money laundering

A corporation or employer is not held jointly liable with the offender, when the corporation has not been negligent in exercising care and supervision of the employee who violated relevant anti-money laundering laws (Article 18, DFA).

In addition, a person is not liable if he unknowingly receives criminal proceeds during the performance of a contract (Article 4, POCA).

Terrorist financing

See above, Money laundering.

Financial/trade sanctions

See above, Money laundering.

Enforcement

27. Which authorities have the powers of prosecution, investigation and enforcement in cases of money laundering? What are these powers and what are the consequences of non-compliance? Please identify any differences between criminal and regulatory investigations.

Authorities

The Financial Intelligence Unit (FIU) is entitled to:

  • Gather and analyse financial transaction information relating to suspected illegal assets or money laundering acts.

  • Provide information to the District Prosecutor's Office, the police, the National Tax Service, Korea Customs Service and the Financial Supervisory Service when the information is necessary in:

    • conducting a criminal investigation;

    • implementing a regulatory inspection;

    • performing an audit of financial transactions;

    • exchanging information and cooperating with foreign governmental agencies.

The commissioner of the FIU can either issue a warning or order for correction, or request disciplinary action against the employee of a company involved in a violation (Article 11, Financial Transactions Reporting Act). If the company does not comply with the commissioner's order, he can request the relevant government authority to suspend the operation of the company for up to six months.

Article 7-2 of the Proceeds of Crime Act, Article 3 of the Terrorism Financing Act and Article 12 of the Drug Trafficking Act confer extra-territorial jurisdiction for the effective enforcement of the respective legislation.

For more information on the District Prosecutor's Office, see box: The authorities.

Prosecution powers

See Question 3.

Powers of interview

See Question 3.

Powers of search/to compel disclosure

See Question 3.

Powers to obtain evidence

See Question 3.

Power of arrest

See Question 3.

Court orders or injunctions

See Question 3.

 
28. Which authority makes the decision to charge and on what basis is that decision made? Are there any alternative methods of disposal and what are the conditions of such disposal?

Convictions and sanctions

29. What are the sanctions for participating in money laundering, terrorist financing offences and/or for breaches of financial/trade sanctions?

Criminal proceedings

Financial Transactions Reporting Act (FTRA).The criminal penalty for the false reporting of a suspicious transaction of illegal assets is up to one year's imprisonment or a fine of up to KRW5 million (Article 14, FTRA).

Proceeds of Crime Act (POCA). The criminal penalty for concealing the facts related to the acquisition or disposal of criminal proceeds is up to five years' imprisonment or a fine of up to KRW30 million (Article 3, POCA).

Violation of the obligation not to receive criminal proceeds will result in up to three years' imprisonment or a fine of up to KRW20 million (Article 4, POCA).

An employee of a financial institution who fails to report suspicious activity to the investigative authority is subject to imprisonment for up to two years or a fine of up to KRW10 million (Article 5, POCA).

Terrorism Financing Act (TFA). The criminal penalty for raising, supplying or transporting funds in the knowledge they are to be used for terrorism is up to ten years' imprisonment or a fine of up to KRW100 million (Article 6, TFA).

Drug Trafficking Act (DTA). The criminal penalty is up to seven years' imprisonment or a fine of up to KRW30 million (Article 7, DTA). The DTA also prohibits the receipt of illegal proceeds with knowledge of its nature with a penalty of up to three years' imprisonment or a fine of up to KRW10 million (Article 8, DTA).

In addition to individual offenders, a financial institution or company can be held criminally liable for violations of the FTRA, POCA, FTA and DTA committed by its representatives, officers, employees or agents during the course of its business.

Sentencing guidelines. See Question 5.

Money laundering

Right to bail. See Question 3.

Penalties. See above, Criminal proceedings.

Terrorist financing

Right to bail. See Question 3.

Penalties. See above, Criminal proceedings.

Financial/trade sanctions

Right to bail. See Question 3.

Penalties. See above, Criminal proceedings.

Safeguards

30. Are there any measures in place to safeguard the conduct of investigations? Is there a process of appeal? Is there a process of judicial review?
 

Financial record keeping

31. What are the general requirements for financial record keeping and disclosure?

Under the External Audit of Joint-Stock Company Law (External Audit Law), listed companies and stock companies with KRW12 billion or more in assets (the threshold varies depending on the amount of liability and number of employees), must:

  • Be annually audited by an external auditor.

  • Prepare and maintain corporate books with effective internal controls in accordance with Korean generally accepted accounting principles (GAAP).

A company must also prepare an account book and a balance sheet on an annual basis and maintain corporate books including important documents related to the business, for ten years (Commercial Code).

The Financial Investment Services and Capital Markets Act (FSCMA) requires a listed company to prepare and report its financial statements on a regular basis to the Financial Services Commission and the Korean Stock Exchange.

The Framework Act on National Taxes requires taxpayers to maintain books and documentary evidence related to all transactions for five years after the due date for the filing of the relevant tax reports.

 
32. What are the penalties for failure to keep or disclose accurate financial records?

The External Audit Law states that violations of certain provisions can result in up to five years' imprisonment or a fine of up to KRW30 million. In addition, individuals responsible for the company's accounts, who has prepared and publicised false financial statements in contravention of the Korean GAAP, will be subject to sanctions of imprisonment up to five years or a fine up to KRW50 million.

The Financial Investment Services and Capital Markets Act (FSCMA) also provides for imprisonment of up to five years or a fine of up to KRW200 million. A violation can result in a fine of up to KRW5 million (Korean Commercial Code).

A person who destroys books and records or intentionally does not keep books and evades tax or receives refunds or deduction of tax will be liable to imprisonment for up to two years and a criminal fine of up to twice the amount of tax evaded. If any tax law requires the maintenance of books of account, and the books are burned, destroyed, or hidden within five years of the due date for the filing of the relevant tax reports to avoid the payment of tax, those responsible are liable to imprisonment for up to two years or a penalty of up to KRW20 million (Article 8, Punishment of Tax Evaders Act). The relevant corporate entity may also be subject to a separate fine.

 
33. Are the financial record keeping rules used to prosecute white-collar crimes?

The financial record keeping rules (see Questions 32 (www.practicallaw.com/a836678) and 33 (www.practicallaw.com/a587170)), other than the Specific Economic Crimes Act, are not used to prosecute domestic or foreign bribery. Unlike the US Foreign Corrupt Practices Act, which has both anti-bribery provisions and accounting provisions, the financial record keeping rules are separate from the Criminal Code.

 

Due diligence

34. What are the general due diligence requirements and procedures in relation to corruption, fraud or money laundering when contracting with external parties?

Due diligence can constitute a defence against corporate liability under the Unfair Competition Prevention and Trade Secret Protection Act (UCPA) and the Financial Investment Services and Capital Markets Act (FSCMA) (see Questions 6 (www.practicallaw.com/a489060) and 36 (www.practicallaw.com/a527127)). Companies are advised to use global best practices when conducting necessary due diligence. It is common to check that the external party has not been subject to any criminal investigation, prosecution or prior administrative guidance or sanctions. Article 68(5) of the Enforcement Decree of the FSCMA states that, "failure to pay due attention for preventing an issuer from stating or indicating a false fact in relation to the material facts in the registration statement or and the investment prospectus" is a type of "unsound business conduct" as defined under Article 71 of the FSCMA. The Financial Investment Business Due Diligence Best Practices Handbook, published by the Financial Supervisory Service, provides due diligence guidelines for companies engaged in financial business.

 

Corporate liability

35. Under what circumstances can a corporate body itself be subject to criminal liability?

Criminal liability is generally not imposed on corporations in Korea. However, there are certain laws, including the following acts, which provide for imposition of criminal sanctions (in the form of criminal fines) against the corporation for misconduct committed by an employee of the corporation or individual under the influence of the corporation:

  • The Foreign Bribery Prevention in International Business Transactions Act (FBPA).

  • The Unfair Competition Prevention and Trade Secret Protection Act (UCPA).

  • The Financial Investment Services and Capital Markets Act (FSCMA).

  • The Financial Transactions Reporting Act (FTRA).

  • The Proceeds of Crime Act (POCA).

  • The Terrorism Financing Act (FTA).

  • The Drug Trafficking Act (DTA).

  • The Anti-Graft Law.

The corporate entity can defend itself by proving that it paid due care and diligently supervised the relevant business or individual to prevent the violation.

 

Cartels

36. Are cartels prohibited in your jurisdiction? How are cartel offences defined? Under what circumstances can a corporate body be subject to criminal liability for cartel offences?

The Monopoly Regulation and Fair Trade Law (FTL) contain provisions prohibiting cartel activities that subject violators to administrative sanctions as well as civil and criminal liability.

Article 19(1) of the FTL provides that no enterprise should collude with another enterprise by contract, agreement, resolution or any other means, or jointly engage in any of the following acts that unfairly restrain competition in a relevant market:

  • Fix, maintain or alter prices.

  • Determine the terms and conditions for trade in goods or services or for payment of prices of compensation thereof.

  • Restrict the production, shipment, transportation or trade in goods or services.

  • Restrict the territory of trade or customers.

  • Hinder or restrict the establishment or expansion of facilities or installation of equipment necessary for the manufacturing of products or the rendering of services.

  • Restrict the types or specifications of goods at the time of production or trade thereof.

  • Establish corporation of the like with other enterprises to jointly conduct or management important parts of businesses.

  • Decide the successful bidder, successful auctioneer, bidding price, highest price or contract price, and other matters prescribed by the Enforcement decree of the FTL.

  • Practically restrict competition in a particular business area by means of interfering or restricting the activities or contents of business by other enterprises.

The Korea Fair Trade Commission (KFTC) is the main regulatory body enforcing the prohibition of cartel activities in Korea. On referral by the KFTC or based on its own decision, the DPO may commence criminal prosecution for cartel activities in violation of the FTL. Private parties may seek private damage actions against violators of the FTL for damages suffered as a result of cartel activities.

The KFTC has the power to order document production, carry out compulsory interviews and/or unannounced search of business premises as well as the right to "image" computer hard drives using forensic IT tools. In the case of refusal, interference or evasion of an investigation, the KFTC can impose an administrative fine (of up to KRW200 million for a corporate body and up to KRW50 million for an individual). Such acts may also provide grounds for increasing administrative surcharges for the cartel activities themselves. Further, criminal sanctions (of up to three years of imprisonment and/or penalties of up to KRW200 million) may be imposed against those parties that refuse/interfere/evade the KFTC's on-site inspection through acts such as verbal abuse, assault and/or purposefully blocking/delaying entry onto the premises.

The KFTC may order companies involved in cartel activities to cease such acts, issue a corrective order, announce the issuance of such corrective order, and/or take other necessary measures to enforce the corrective order. Also, along with such corrective order, an administrative surcharge not exceeding an amount of 10% of the relevant sales of the relevant product during the period in violation may be imposed. Further, if a court finds that a company was engaged in cartel activities in violation of the FTL, following the KFTC's referral to the DPO, criminal liability of up to three years of imprisonment and/or penalties of up to KRW200 million may be imposed.

See Cartel Leniency Q&A: South Korea.

 

Immunity and leniency

37. In what circumstances is it possible to obtain immunity/leniency for co-operation with the authorities?

The Criminal Code includes a general provision that penalties can be reduced or exempted if a person surrenders himself to an investigation agency after the commission of a crime. However, there is no explicit mechanism for companies or individuals to obtain immunity or leniency for co-operation with the authorities. Co-operation can in certain circumstances be a factor to take into consideration when determining the severity of sanctions to be imposed.

With respect to the FTL, the KFTC does operate a leniency regime with respect to disclosure of information relating to cartels. The KFTC also grants a reduction of up to 30% of imposed administrative fines for investigation subjects that are deemed to have cooperated with a KFTC investigation.

 

Cross-border co-operation

38. What international agreements and legal instruments are available for local authorities?

Obtaining evidence

Mutual legal assistance in Korea is principally governed by:

  • Bilateral treaties (Korea has mutual legal assistance treaties with 23 countries including Australia, Argentina, Brazil, Canada, China, France, India, Japan, Russia, Spain and the US).

  • The Extradition Act.

  • The Act on International Judicial Mutual Assistance in Criminal Matters (Act on Criminal Mutual Assistance (ACMA)).

Evidence in criminal cases can be obtained from countries that have entered into a mutual legal assistance treaty with Korea. If a mutual assistance treaty does not exist, mutual legal assistance is still possible if a requesting country guarantees to comply with any request from Korea for mutual assistance with respect to the same or similar matters (Article 4, ACMA).

Seizing assets

See above, Obtaining evidence.

Sharing information

Regulatory authorities who receive information regarding corruption may notify authorities in other jurisdictions.

 
39. In what circumstance will domestic criminal courts assert extra-territorial jurisdiction?

Specific statutes provide for jurisdiction over conduct taking place overseas insofar as they concern actions by Korean persons, such as the FBPA. Foreign citizens may be subject to Korean laws for engaging in acts committed abroad if they involve Korean public officials.

 
40. Does your jurisdiction have any statutes aimed at blocking the assertion of foreign jurisdictions within your territory? Are there statutes aimed at blocking the assertion of foreign jurisdictions within their territory?

Korea does not have any blocking statutes in respect of the extra-territorial application of foreign law. However, Article 217 of the Civil Procedure Code allows Korea to limit the enforcement of foreign awards in anti-trust cases involving Korean defendants.

 

Whistleblowing

41. Are whistleblowers given statutory protection?

The Anti-Corruption Act protects and rewards whistleblowers who report corruption in the public sector. The Whistleblower Protection Act offers legal protection and financial incentives to whistleblowers who report wrongdoing in the private sector which serves the public interest. The Anti-Graft Act also provides for similar protection, for those who report violations of the Anti-Graft Act.

Whistleblowers are granted anonymity during investigation and court proceedings, in addition to police protection, if deemed necessary. Whistleblowers may receive a reward for reporting instances of wrongdoing as long as they meet certain requirements under the procedures outlined in the Whistleblower Protection, Anti-Corruption and Anti-Graft Acts.

 

Reform, trends and developments

42. Are there any impending developments or proposals for reform?

The Anti-Graft Act's entry into force as of 28 September 2016 is expected to result in renewed interest on preventive measures and revamping of compliance policies in Korea, for both domestic and multinational companies. The new law imposes corporate liability, which implies companies will need to keep track of payments being made by its employees to not only government officials, but also teachers and reporters.

 

Market practice

43. What are the main steps foreign and local companies are taking to manage their exposure to corruption/corporate crime?

As a part of Korea's integration into the global economy, there is an increased sensitivity to:

  • Corporate governance.

  • Management transparency.

  • Implementing compliance regimes.

This change is partly explained by the increasing sophistication of major domestic companies and multinational companies doing business in Korea in addition to continued anti-corruption and anti-fraud enforcement by the authorities. Knowledge of the expansive reach of the FCPA, the UK Bribery Act and the requirement in the Korean Commercial Code to appoint a compliance officer, have increased compliance with global standards, for example:

  • Anti-corruption and anti-fraud policies with clear thresholds for payments and gifts.

  • On-going monitoring of compliance, including the setting up of whistleblower hotlines.

  • The imposition of appropriate sanctions based on investigation findings.

  • The creation of a dedicated department in charge of monitoring and investigating compliance.

A greater focus on compliance measures is likely in more sophisticated industries that involve larger companies with greater internal competition. It appears companies are increasingly conducting due diligence and risk assessment when entering into contracts with third parties and other businesses.

There have been major changes in the compliance landscape in Korea including measures dealing with:

  • Anti-corruption.

  • Data privacy.

  • Financial accounting.

  • Bolstering whistleblower protection.

As a result, local and foreign companies are implementing new internal compliance policies or re-evaluating and modifying existing ones to best protect themselves from potential liability. While global standards are important in establishing compliance policies and training programs, companies must also take into account relevant domestic laws and the specific risks involved in Korea. For example, key elements of compliance policy should include an introduction and/or guidance in respect of:

  • The Public Official's Code of Conduct.

  • Examples of gifts provided at weddings and funerals (both public and private sectors) and entertainment expenses.

  • Local anti-bribery statutes.

  • The Whistleblower Protection Act.

 

The authorities

Supreme Prosecutor's Office

W www.spo.go.kr/eng/index.jsp

Status. The Supreme Prosecutor's office is the central organisation supervising all activities of the District Prosecutor's Office.

Principal responsibilities. The Supreme Prosecutor's Office investigates crimes, collects evidence, initiates and maintains prosecutions, and supervises the enforcement of legal sentences to protect the public and property from various kinds of crimes.

Please refer to the Supreme Prosecutor's Office website for links to each District Prosecutor's Office.

National Police Agency

W www.police.go.kr/main.html

Status. The National Police Agency is responsible for overseeing all subordinate police agencies.

Principal responsibilities. It provides policing services throughout the country.

Ministry of Justice (MOJ)

W www.moj.go.kr/HP/ENG/index.do

Status. The MOJ is a part of the executive branch of the government.

Principal responsibilities. The MOJ supervises the Prosecutor's Office.

Financial Services Commission (FSC) / Financial Supervisory Service (FSS)

W www.fsc.go.kr/eng/index.jsp (FSC) / http://english.fss.or.kr/fss/en/main.jsp (FSS)

Status. The FSC is a government organisation. The FSS officials are not considered government officials, and take orders from the FSC.

Principal responsibilities. The FSC and the FSS are the regulatory authorities for the financial sector. They have a wide range of rule-making, investigatory and enforcement powers.

Korea Financial Intelligence Unit (FIU)

W www.kofiu.go.kr

Status. The FIU is a governmental organisation.

Principal responsibilities. The FIU aims to prevent money laundering and illegal fund flows, including terrorist financing.



Online resources

Ministry of Government Legislation

W http://law.go.kr/main.html

Description. Official Korean language website of legislation/case law/rules which is updated and officially maintained.

Korea Legislation Research Institute

W http://elaw.klri.re.kr/eng_service/main.do

Description. Unofficial but widely used English language website of legislation officially maintained by the Korea Legislation Research Institute. Translations should be used for guidance purposes only. Some provisions may not have been fully updated.



Contributor profiles

Seung Ho Lee

Kim & Chang

T +82 2 3703 1165
F +82 2 737 9091/9092
E shlee1@kimchang.com
W www.kimchang.com

Professional qualifications. Korea, 1991; New York, 2004.

Areas of practice. Corporate investigations; white collar defence; corporate governance; banking

Non-professional qualifications. Harvard Law School (LL.M., 2004); College of Law, Seoul National University (LL.B., 1986)

Languages. Korean, English and German

Publications.

  • Getting the Deal Through - Anti-Corruption Regulation: Korea Chapter (Co-author, Law Business Research, 2016).

  • Getting the Deal Through - Government Investigations: Korea chapter (Co-author, Law Business Research, 2015).

  • Practical Law - Financial and Business Crime Global Guide: Korea chapter (Co-author, Thomson Reuters, 2013-2015).

Jun Ki Park

Kim & Chang

T+82 2 3703 1509
F +82 2 737 9091/9092
E jkpark2@kimchang.com
W www.kimchang.com

Professional qualifications. Korea, 2005

Areas of practice. Corporate investigations; white collar defence; international arbitration; cross-border litigation

Non-professional qualifications. Columbia Law School (LL.M., 2013); Harvard College (B.A., Chemistry and Physics, 1995)

Languages. Korean and English

Young Gi Jung

Kim & Chang

T +82 2 3703 1607
F +82 2 737 9091/9092
E ygjung@kimchang.com
W www.kimchang.com

Professional qualifications. Korea, 2006

Areas of practice. Corporate investigations; white collar defence; anti-corruption; corporate compliance

Non-professional qualifications. University of Southern California Law School (LL.M., Business Certificate, 2013); College of Business Administration, Seoul National University (B.A, 2005)

Languages. Korean and English

Hee Won (Marina) Moon

Kim & Chang

T +82 2 3703 4734
F +82 2 737 9091/9092
E heewon.moon@kimchang.com
W www.kimchang.com

Professional qualifications. New York, 2010

Areas of practice. Anti-corruption and corporate compliance; corporate investigations; white collar defence

Non-professional qualifications. University of Pennsylvania Law School (J.D., 2009); Seoul National University (B.A., 2006)

Languages. Korean, English and French

Publications.

  • Getting the Deal Through - Anti-Corruption Regulation: Korea Chapter (Co-author, Law Business Research, 2016).

  • Getting the Deal Through - Government Investigations: Korea chapter (Co-author, Law Business Research, 2015).


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