South Korea

Following the Constitutional Court’s decision on the Improper Solicitation and Graft Act, known as the Kim Young-ran Act, as constitutional on July 28, 2016, it will be enacted on September 28, 2016. Under the Act, the definition of “Public Officials” applies to a broad range of people, including executives and employees of government-related bodies, journalists and faculty members and staff of private schools, and the Act prescribes dual liability for companies. This will inevitably change the relationship companies have with such people. In this regard, it is important for companies to know the main points of the Act.

Illegal solicitation (Article 5): Even without providing or promising to provide money (or goods, valuables, entertainment, etc), if you ask a public official to violate the law or abuse their position and authority in relation to their duties listed under Article 5(1) of the Act, you will be subjected to fines, regardless of whether the official acts on the solicitation.

Making a solicitation for yourself will be an exception to this. However, companies will be subject to punishment without exception, because the only practical way for them to make any solicitation is through their executives or employees and such executives or employees (including those with a right of representation) are deemed a third-party independent of a company.

Giving and accepting money (Article 8): According to the Act, if “the same provider” provides or promises to provide money for whatever reason, in excess of the lump sum amount of W1 million once or W3 million for a fiscal year, “the same provider” will be criminally punished regardless of its relation to duties of public officials or compensation.

Even if “the same provider” gives money in the amount of W1 million or less, any relation it has to “the duties” of public officials will cause the provider to be fined (whether or not such provision was for compensation), except for socially accepted reasons under the enforcement decree of the Act. Since “the duties” means “any and all of the work that Public Officials handle in their capacity”, it is more likely for such relations to be acknowledged as long as your duties and the duties of public officials have something to do with each other.

When dealing with the prohibition in Article 8, companies need to pay special attention to the concept of “the same provider”. It may be defined by the nature of the actual provider of money. For example, providing money by several executives or employees working for the same company can be defined as money offered in a lump sum by “the same provider” depending on proximity of time and place, and their collective intention.

Giving and/or accepting compensation for outside lectures (Article 10): The Act enables companies to give public officials compensation for providing lectures but only up to the set ceiling. There is no defined punishment for a company that pays beyond the ceiling, but it may be criminally punished or fined in accordance with Article 8 above if it is deemed that the compensation is not in return for “the outside lecture”, which means “delivery of one’s opinion or knowledge to a massive audience or a type of a meeting that is related to one’s duties”. Therefore, legal review should come before provision of the compensation to decide whether such compensation is a consideration for “outside lecture”.

Dual liability (Article 24):
The Act punishes the company, along with its executives or employees, if they are involved in behaviours prohibited under the Act. Although not easy to prove, the company may be exempted from punishment if it demonstrates that it made considerable efforts in exercising caution and supervision of such illegal acts. Accordingly, companies should do the following so that they can prevent their executives or employees from conducting illegal acts – or gain immunity from liability for the illegal acts of an individual.

(i) In order to be compliant under the Act, companies must prioritise the need to examine their business practices with Public Officials and make or revise internal guidelines. (ii) They also need to tighten control over their budgets by monitoring compliance, and thereby supervise the work of executives and employees. (iii) It is advised that companies request advice from legal experts whenever necessary when conducting legal review of their plans. (iv) During post management, the company may consider giving increased punishment to a person who violates the Act. (v) Fundamentally, executives or employees who are in charge of or frequently communicate with Public Officials will have to be fully informed of the details of the Act through regular and obligatory internal and external education. Additionally, it is a good idea to intensify education for business integrity and to raise awareness.

Experts view that the Act will take place through various restrictive measures against existing practices regarding promotion and entertainment in Korea. In preparation for this new landscape, companies will have to pay close attention to prohibitions of the Act and finalisation and amendment of the enforcement decree to avoid becoming victims of this new Act.

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Lee International
Poongsan Bldg. 23 Chungjeongro, Seodaemun-gu, Seoul 03707, Korea
Tel: 82 2 2262 6288 / Fax: 82 2 2279 5020
E: gykim@leeinternational.com
W: www.leeinternational.com

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