Jurisdiction - Korea
Reports and Analysis
Korea – Recent Anti-Corruption Developments.

30 July, 2012

 

Overview
 
The Act on Preventing Bribery of Foreign Officials in International Business Transactions (“FBPA”), enacted in 1999, made South Korea one of the first jurisdictions in Asia to adopt a law prohibiting the bribery of foreign officials. The FBPA, however, has been used sparingly, leading to only nine convictions in thirteen years. The low number of convictions has raised concerns among international observers about the effectiveness of the FBPA’s enforcement.
 
The OECD has also expressed concern that most prison sentences imposed under the FBPA fall far below the statutory maximum. Violating the FBPA carries with it a maximum of five years imprisonment, a fine of KRW20 million (approximately US$20,000), or twice the profit earned where profits exceed KRW10 million (approximately US$10,000). However, at least half of the defendants sentenced to imprisonment have received suspended sentences.
 
Recently, South Korea has passed sentencing guidelines that recommend harsher fines for bribery offences. The passage of this legislation may alleviate international concerns, but the record of enforcement in South Korea invites a cautious outlook.
 
Recent international corruption cases
 
A UK-based drinks company
 
In July 2011, the SEC charged a UK-based drinks company was charged with multiple FCPA violations involving US$2.7 million of allegedly improper payments made over a period of over six years. The company consented to a cease-and-desist order, and agreed to pay over US$16 million in penalties, disgorgement and interest.
 
Among other things, court filings alleged that the company paid KRW100 million (approximately US$86,000) to a South Korean customs official as a reward for his role in the decision to grant the company US$50 million in tax rebates. The company was also alleged to have improperly paid travel and entertainment expenses to South Korean customs and government officials involved in these tax negotiations. Separately, the company allegedly made hundreds of gift payments to South Korean military officials on a routine basis in order to obtain and retain business.
 
The SEC’s investigation found that the company and its subsidiaries failed to properly account for these illicit payments in their books and records. Instead, they concealed the payments to government officials by recording them as legitimate expenses for third party vendors or private customers. The SEC also found that the company lacked sufficient internal controls to detect and prevent the corrupt payments and improper accounting.
 
A multi-national technology firm
 
As discussed in the PRC section, on 18 March 2011, the SEC charged a multi-national technology firm with violating the books and records and internal control provisions under the FCPA. In settling the matter, the company agreed to disgorge profits of US$5.3 million, settle civil penalties of US$2 million, and pay an additional US$2.7 million in prejudgment interest.
 
In addition to the conduct in the PRC, the company allegedly paid cash bribes and provided improper gifts and expenses payments to a number of government officials in South Korea in order to secure the sale of the company’s products.
 
Recent domestic corruption case
 
In May 2011, representatives of a South Korean logistics company and travel agency were indicted by the Incheon District Prosecutor’s Office for allegedly bribing the President of a Chinese airline’s South Korean subsidiary in violation of the FBPA.
 
In February 2012, the court acquitted the two accused officers of FBPA charges on the grounds that the prosecution had failed to prove that the president of the South Korean subsidiary qualified as a foreign public official. However, the court found the defendants guilty of commercial bribery charges under the Korean Criminal Code.
 
Recent developments in domestic anti-corruption legislation
 
Whistleblower protection
 
The Act on the Protection of Public Interest Whistleblowers (“WPA”) was enacted on 29 March 2011 and came into force on 30 September 2011. The WPA covers both public and private-sector whistleblowers who report in good faith and on reasonable grounds “public interest violations” and also extends to those who report cases of foreign bribery. It provides various protections for whistleblowers, including confidentiality safeguards, anti-retaliatory provisions and the payment of “relief money” and rewards to whistleblowers.
 
New information and intelligence gathering capacity
 
In May 2011, South Korea increased its information and intelligence gathering capacity to support investigations of international crime, including the bribery of foreign public officials. The measures include: (i) requiring regular updates by the Ministry of Justice to the Supreme Prosecutor’s Office on allegations in the international media; (ii) the establishment of a new special team within the Office of Criminal Intelligence Planning, Supreme Prosecutor’s Office, with a mandate to gather information on criminal enforcement; and (iii) a new focus on foreign information gathering at the International Criminal Affairs Division, Ministry of Justice, to support the active enforcement of the FBPA.
 
 

For further information, please contact:

 

Mark Johnson, Partner, Herbert Smith

mark.johnson@herbertsmith.com 

 

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