The Prosecutors' Office has the power to investigate all kinds of criminal offences, and has the sole power to prosecute an individual or entity (including corporations) to the court. The police have the power to investigate general crimes such as fraud, embezzlement, and forgery of documents. In addition, specific government agencies are granted the authority to investigate certain crimes: the National Tax Service (NTS) over tax violations, the Korea Fair Trade Commission (KTFC) over competition law violations, the Financial Supervisory Service (FSS) over securities-related crimes, the Ministry of Employment and Labour over labour law violations, and the Ministry of the Environment for environment law violations, among others. The police and such aforementioned government agencies are permitted to conduct dawn raids with the cooperation from the Prosecutors' Office and with a court-issued warrant. Agencies such as the NTS and KFTC more often conduct onsite investigations and request voluntary production of document and evidence; failure to cooperate with such productions requests can result in broader and more stringent investigations. As a practical matter, government investigations can be divided into two major categories: an investigation initiated by the relevant authority is termed a ‘special investigation', while an investigation initiated with the filing of a criminal complaint by an aggrieved party is termed a ‘routine investigation.' Domestic political concerns usually impact the prosecutorial function for special investigations, but not for routine investigations. The individual or entity being investigated in a routine investigation may take an adversarial stance; however, such a stance would be difficult to sustain in a special investigation since lack of cooperation frequently triggers investigations that are longer in duration and broader and more stringent in terms of scope.
In general, there is no obligation for a business to self-report its wrongdoing. There are also no benefits enumerated in laws or written policies for businesses that self-report. Nonetheless, there may be incentives for a business to self-report wrongdoing. If the business in question is being subjected to a special investigation, the authorities may narrow the scope of investigation, the number of charges, or the entities to be indicted, or may close the investigation early, if the authorities determine that self-reporting has substantially assisted the investigation process. It should be noted that such benefits are provided or negotiated on case-by-case basis, rather than being prescribed in accordance with formal procedures. In a routine investigation, any benefits from self-reporting are relatively limited since the scope of the investigating authority's discretion is narrower than in a special investigation. Furthermore, the aggrieved party may object to benefits being provided to the self-reporting party. In terms of sentencing, self-reporting is a mitigating factor.
In cartel investigations, there is a written leniency policy for self-reporting; recently, self-reporting has become a trend. A self-reporter, with some preconditions, may receive mitigation of or exemption from administrative sanctions. To be eligible for exemption from administrative surcharges and restraining orders, the self-reporter must meet all of the following requirements:
a the self-reporter must, in a voluntary and independent manner, be the first person to provide evidence necessary to prove the existence of a cartel;
b the KFTC must have insufficient evidence to prove the cartel and must not have initiated the investigation;
c the self-reporter must remain cooperative until the investigation is complete; and
d the self-reporter must have suspended its collusive practice.
A self-reporter who meets the above requirements but has reported after the KFTC has initiated its investigation is still eligible for exemption of the administrative surcharge and exemption from or mitigation of restraining orders.
A business that provides, regardless of whether KTFC has initiated its investigation when self-reporting was conducted, the evidence necessary to prove the existence of a cartel in a voluntary and independent manner but second-in-order (i.e., another business has already self-reported), is eligible to receive a 50 per cent reduction of the administrative surcharge and a mitigation of the restraining order, if it remains cooperative until the investigation is complete and it has suspended its collusive practice. However, the aforementioned benefits for a second-in-order self-reporting business are not available if: there are only two businesses in the cartel and the self-reporting occurs second-in-order; or the self-reporting occurs more than two years after the first self-report. Also, all of the above benefits are not available if the self-reporter forced another to participate in the cartel, forced another not to leave the cartel, or participated in the cartel within five years upon receiving sanctions for collusive practice.
ii Internal investigations
Businesses often conduct internal investigations led by internal counsel, and receive advice from or representation by external counsel when or after they file a criminal or a civil complaint against the wrongdoers. Therefore, it is relatively uncommon for an internal investigation to be conducted by external counsel.
Businesses have no obligation to share the results of an internal investigation with the government. Interviews with witnesses and examination of e-mails, documents or financial transactions are the typical means used during an internal investigation. There is no established practice regarding an employee's retention of legal counsel during an internal investigation. It should be noted that Korea is not an ‘at will' jurisdiction with regard to the termination of employees. Therefore, even if an employee refuses to participate in an investigatory interview on the grounds that the interview will be conducted without the presence of the employee's lawyer, such refusal alone would not necessarily constitute just cause for the termination of said employee, unless refusal to participate would somehow constitute a material breach of the employment agreement.
According to precedent set by the Supreme Court, attorney-client privilege or attorney work product privilege for communications between an individual and his or her counsel is not recognised prior to the commencement of a criminal investigation or criminal proceedings. The issue at hand is whether a memorandum containing incriminating information and written by the attorney of the defendant was inadmissible due to attorney-client privilege. The Supreme Court ruled that attorney-client privilege could not be recognised since the communication was made prior to the start of the criminal investigation and criminal proceedings. The Supreme Court's rationale appears to have been that the need to protect attorney-client communications is reduced when there are no criminal proceedings against the client. It is not clear whether the Supreme Court recognises such privilege if communications are made after the start of the criminal proceedings. In any case, an attorney has a duty not to disclose confidential information, has the right to refuse seizure of objects that came under his or her custody in the course of providing legal services and that are related to another's confidential information, and has the right to remain silent before the court for matters regarding confidential information. In the aforementioned case, the Supreme Court ruled that the attorney's memorandum was inadmissible as evidence, since the attorney refused to testify with regard to its authenticity; this led to the same result that would have transpired had the Supreme Court recognised attorney-client privilege. In special investigations, as the case may be, waiver of the aforementioned protections for the confidential information might be expected as part of the individual or company's cooperation with the authorities. It should also be noted that the aforementioned duties and rights are only afforded to attorneys. The client cannot assert such rights when the client has been requested to produce such information. There have been incidents where the FSS requested financial institutions to submit memoranda written by external counsel or e-mails between the financial institution and its external counsel when such information was in the financial institution's custody.
Although whistle-blower reports have always triggered a portion of government investigations, they have not been very common in the past. However, with an increase in incentive programmes and a shift in public attitude toward whistle-blowers, there has been a rise in whistle-blowing reports. The major statutes guaranteeing whistle-blower protections are as follows: the Protection of Public Interest Reporters Act (PPA), the Act on Protection of Specific Crime Informants, and Article 84-2 of the Framework Act on National Taxes. There are more than 50 Guidelines declared by government agencies regarding incentive programmes for whistle-blowers. Such legislation provides for prohibition of retaliation against whistle-blowers, provisions of personal security, monetary compensation to whistle-blowers, and formulas for the calculation of compensation.
The PPA sets forth the following elements with regard to whistle-blower incentive programmes:
a Retaliation against or interference with whistle-blowing is prohibited;
b when serious harm to the life or body of whistle-blower is expected, police protection may be provided;
c if a whistle-blower is involved in a criminal violation with regard to the subject of reporting, mitigation or exemption of punishment may be provided;
d compensation is to be provided where whistle-blowing has led to a direct recovery of or increase in the revenue of the government or public institutions through imposition of criminal or administrative sanctions to the business;
e a whistle-blower's disclosure of confidential business information to the authorities is not deemed as a violation of his or her employment agreement or any other laws or regulations;
f businesses may not claim damages against a whistle-blower even though they suffer damages due to the whistle-blower's reporting, unless the reporting was a false claim, the whistle-blower requested money or undue favour in the workplace in connection with the reporting, or the reporting was for other unlawful purposes;
g if a whistle-blower suffers a loss (e.g., decrease in wage or additional expenses due to the transfer of his or her job), upon filing from the whistle-blower, the government can provide relief funds to the whistle-blower and then later subrogate the whistle-blower's claim against any third party;
h the personal information of the whistle-blower may be treated on a no-name basis during the investigation and relevant proceedings, and should not be disclosed to any third party without prior consent from the whistle-blower; and
i if the incentives provided under other bodies of legislation are more beneficial to the whistle-blower than the aforementioned incentives set forth in the PPA, the more favourable incentives set forth in other bodies of legislation shall prevail.
i Corporate liability
Although the Criminal Act that governs traditional crimes such as bribery, embezzlement, or fraud does not recognise corporate criminal liability, various other acts imposing industry-specific or subject-specific regulations (e.g., the acts on securities, construction, pharmaceuticals, public procurement, taxation, labour, competition, environment, etc.), usually recognise corporate criminal liability. The standard wording used in these acts with respect to corporate criminal liability is that:
if a representative, agent, or employee of a corporation (‘corporate representative') violates . . . [a provision in an Act] . . . in connection with the business of the corporation, the corporation itself, as well as the corporate representative, may be subject to . . . [a criminal fine] . . .
To assess whether the actions of an employee were committed in connection with the business of the corporation, the totality of circumstances should be taken into account, including:
a the scope of the corporation's business;
b the title and position of the employee in question;
c the relevance between the illegal act committed by the employee and the business of the corporation;
d the motive behind the illegal act and follow-up actions;
e whether the corporation knew of the commission of the conduct or was involved therein, and if so, to what degree; and
f the source of the money used by the employee in carrying out the conduct, and to whom the profit therefrom is attributed.
It should be noted that one Supreme Court case has held that the ‘employee of a corporation' in the above provision shall include not only those who are formally employed by the corporation in question, but also those who directly or indirectly perform the duties for such corporation while under the direct control or supervision of the corporation.
With respect to civil liability, the principle of respondeat superior applies. The burden of proof is on the employer to prove that it has exercised due care in appointing the employee and in supervising the performance of the specific affair, or that the loss would have been inflicted even if the employer exercised due care.
The Ethical Code of the Korean Bar Association prohibits representation of multiple clients in one case when there is any conflict of interest between them, unless all the clients consent and such representation does not prejudice any of the clients. There is not a significant volume of court precedent on this issue, but it is not uncommon, at least during the investigation phase where the conflict between the corporation and the implicated individuals has not yet materialised, for a corporation and the implicated individuals to be represented by the same counsel.
The punishable violations and the corresponding punishments and sanctions are stipulated in each act, with criminal fines and administrative surcharges being the most common punishments imposed on businesses. An object used in a crime, produced or acquired by the criminal conduct, or acquired in exchange for the object above, can be confiscated. If confiscation is impossible, the equivalent monetary value should be collected. For certain violations, a restraining order or revocation or suspension of licence is imposed. In cases involving public procurement contracts, debarment can be imposed. The ceiling for the debarment period is two years. Considering the stipulated range of sanctions and the practice of each government authority, administrative surcharges for violations of competition law are usually the most severe consequences, with the amounts often exceeding tens of billions of won. So far, we have not seen other types of violations that frequently entail the enforcement of monetary sanctions of such magnitude. Various acts provide for the revocation of corporate licences as a sanction for severe violations, and suspension of licences as a sanction for moderate violations. Generally, the period for licence suspension does not exceed three years, and the suspension may be substituted by an administrative surcharge. These criminal or administrative sanctions are, depending on the underlying acts, either mandatory or discretionary. Criminal sanctions are enforced by the Prosecutors' Office. Administrative sanctions such as surcharge, restraining order, revocation or suspension of corporate licenses, or debarment is enforced by the competent administrative agencies. Businesses can challenge these administrative sanctions and file a suit with the court. Generally, a criminal fine is smaller in amount compared to an administrative surcharge.
iii Compliance programmes
As mentioned above, the law provides a safe harbour if the business in question fully performed its duty to supervise its corporate representative and took reasonable and thorough measures to prevent criminal violations by its corporate representative. Full discharge of a corporations' duty can mitigate or exempt corporations from criminal penalty. Although courts have yet to establish clear standards on the specific measures and actions that should be taken by corporations in order to be exempt from criminal punishment, the Supreme Court held, in an unauthorised building construction case, that the question of whether a corporation fulfilled its obligation to supervise its corporate representative is assessed by taking into account the totality of circumstances, including:
a the intent and purpose of the law that the corporation is being charged with violating;
b the degree of infringement of said law;
c the intent of the legislator in imposing corporate criminal liability in regards to the violation in question;
d the details of the violation and the degree of damages or consequences caused thereby;
e the size of the corporation and the feasibility of supervising individuals who commit violations; and
f the measures or actions taken by the corporation in order to ensure the prevention of such violations.
It was also held that exercising general supervision by training employees to ensure compliance with the Public Health Control Act and collecting signed pledges of compliance from employees when they entered the company does not automatically qualify a corporation for exemption from liability. In this regard, a corporation should:
a periodically update its internal compliance manuals;
b provide regular employee training sessions;
c evaluate factors that cause corruption and analyse the business activities of each department to understand risks and conduct and tailor proportionate supervision accordingly;
d establish an internal control and compliance system; and
e conduct a thorough internal investigation and establish a policy of zero tolerance when any violation is detected.
With regard to administrative sanctions, the relevant acts usually do not provide safe harbour for businesses. However, court precedent indicates that justifiable cause for the violation may be accepted as a defence.
iv Prosecution of individuals
Since corporate criminal liability is not recognised under the Criminal Act and the amount of criminal fines imposed on corporations is usually not substantial, the investigating authorities generally seek to hold individuals liable first; then, if the relevant act contains a corporate criminal liability provision, the investigating authorities may hold the corporation liable with the evidence gathered in the investigation against the individuals. When the government investigates individuals, a corporation may coordinate with the individual's counsel as long as such coordination does not amount to improper interference with the government's investigation. Immediate termination or discipline of the responsible employees may prove the company's full commitment to implementing its compliance policy but, in practice, it takes substantial time before a corporation can complete the proper procedures and obtain enough evidence to undertake disciplinary actions required under Korean labour laws. Therefore, lack of immediate disciplinary measures against the individuals involved is usually not regarded as lack of commitment or enforcement of a compliance policy within the corporation.
When the individual representative or employee of a corporation becomes a suspect or a defendant to a criminal or civil case, the corporation cannot pay or advance the legal fees. However, if the corporation has a substantial interest in the outcome of the case, the individual's actions were lawful, or such action was required by the individual's position, and, therefore, the corporation needs to support the case for its own interest and the amount of legal fees are reasonable, the payment of legal fees by the corporation is allowed. The court will take into account the totality of circumstances in determining whether the payment of such fees is proper. Although some insurance companies provide directors' and officers' liability compensation policies, they do not usually seem to cover intentional violations of law or regulations.
i Extraterritorial jurisdiction
Generally, Korean authorities have no jurisdiction on conduct that occurs outside Korean territory and is committed by a foreign national or a foreign company unless Korea or Korean citizens are affected by the conduct. Likewise, the authorities do not spend significant resources on the conduct of (foreign or domestic) companies outside Korea unless such conduct has a substantial effect on Korea or its citizens.
ii International cooperation
The Korean government cooperates with other countries' law enforcement or prosecutorial functions. Although practical difficulties exist due to the language barrier and workload of translation within the authorities, international cooperation is becoming more common. Traditionally, such cooperative efforts have been treaty-based. However, more authorities are focusing on direct inter-authority cooperation (e.g., cooperation between prosecutorial functions, polices, tax authorities, and financial intelligence units in each country, etc.). Although Korea has extradition treaties and mutual legal assistance treaties (MLAT) with major countries, in practice extradition is permitted in a small number of major cases. From 2004 to 2015, Korea requested extradition for 18 persons and received extradition requests for seven persons on average each year. For the same period, Korea requested MLAT for 81 cases and received MLAT for 70 cases, annually. The average number of suspects repatriated into Korea from 2011 to 2015 was 131 annually.
iii Local law considerations
Since Korea has strict data privacy laws, companies usually have to receive a very detailed consent letter before gathering information from an employee's digital devices. Although informal dialogue or negotiations with the investigating authority is usually permitted, formal plea bargaining or settlement with authorities is not recognised under law, which makes it difficult for a corporation to resolve a case at an early stage. Although a suspect or defendant in a criminal investigation can receive assistance from counsel during a government interrogation, the practice with respect to the scope of permitted attorney assistance differs among agencies or the individual investigator, and depending on whether the investigation is a routine investigation or a special investigation. Unless the manner in which the investigation is conducted is deemed unfair, it is usually not permitted, without the approval by the investigator, for an attorney to interrupt a conversation between the investigator and the suspect, or for an attorney to directly answer the investigator instead of the suspect. Whether note-taking by attorney is permitted also differs among agencies or investigators. Investigators often keep asking questions even after the defendant opts to remain silent. When authorities interview a witness (i.e., a person who is not a suspect or a defendant), the witness is not allowed to receive assistance of counsel during the interview. When an investigation is conducted by agencies other than the Prosecutors' Office or the police and the investigation is not aimed at imposing criminal sanctions, the assistance of counsel during government interrogation is sometimes denied.
V YEAR IN REVIEW
From September 2016, a very stringent and thorough new anti-corruption law, the Improper Solicitation and Graft Act, was introduced. The new Act applies to a wide scope of targets including not only public officials but also employees of private media companies, teachers and employees of private schools, and private individuals performing public duties. Specifically, it has two major components: prohibition of provision of economic benefits to a public official; and prohibition of improper solicitation. When the economic benefit is in excess of 1 million won at a time or 3 million won in total in one fiscal year, provision of such benefit is criminally punished regardless of its connection with the public official's duties and its motive. When the economic benefit is less than the above amounts and the benefit is given in relation to the public official's duties, provision of such benefit is punished by a surcharge regardless of whether it is provided to receive an improper advantage.
From late 2016 until mid-2017, the corruption investigations involving former President Park, her confidant Choi, and a couple of Korean conglomerates, which occurred just after the new Anti-corruption Act was introduced, were the most influential government investigations in Korea.
VI CONCLUSIONS AND OUTLOOK
From a global perspective, government investigations in Korea tend to be more focused on holding the individuals liable, and, with the exception of competition-law violations, monetary sanctions imposed on corporations have not been relatively harsh. There is room to improve with respect to the protection of an individual or corporation's procedural rights during the investigation, including by broadening the scope of attorney's assistance during interrogation and recognition of attorney-client privilege and the doctrine of attorney work-product privilege. Although international cooperation is growing, there is still the practical obstacle posed by a lack of resources and language barriers. The corruption case surrounding former President Park shows that there is scope for improvement with regard to prevention of corruption in Korea, and it is possible that former President Park's case may trigger additional legislation or enforcement with regard to anti-corruption efforts.
1 Seong-Jin Choi and Tak-Kyun Hong are partners and Alex Kim is a foreign attorney at Shin & Kim.
2 However, certain financial institutions have obligations to report its wrongdoing upon discovery (Article 12 of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes). The rationale seems to be that certain financial institutions provide public functions.
3 ‘Circumstances after the commission of the crime', which includes self-reporting, is one of sentencing factors (Article 51.4 of the Criminal Act); Voluntary confession to the authorities by the representative of a corporation may exempt or mitigate criminal punishment (Article 52 of the Criminal Act, Supreme Court of Korea judgment, 95DO391, 25 July 1995); Self-reporting is a mitigating factor in Sentencing Guidelines (http://sc.scourt.go.kr/sc/engsc/index.jsp).
4 Article 22.2 of the Monopoly Regulation and Fair Trade Act.
5 Article 35 of the Enforcement Decree of the Monopoly Regulation and Fair Trade Act; Public Notification on Implementation of Leniency Programme, Including Corrective Measures against Voluntary Confessors, etc. of Unfair Cartel Activities (KFTC Public Notification No. 2016-11, 30 September 2016).
6 Supreme Court of Korea, judgment 2009DO6788, 17 May 2012.
7 Article 317 of the Criminal Act.
8 Article 112 of the Criminal Procedure Act.
9 Article 149 of the Criminal Procedure Act.
10 Young-Ik Choi, ‘What if FSS requests submission of memorandum written by lawyer?', Law Times, 20 January 2015.
11 Article 13, 15, and 26 of the PPA.
12 E.g., the Guideline for Compensation of Person Who Report Competition Law Violation (KFTC Public Guideline No. 2016-21, 21 December 2016).
13 Article 15 of the PPA.
14 Article 13 of the PPA.
15 Article 14 of the PPA.
16 Article 26 of the PPA.
17 Article 14 of the PPA.
18 Article 14 of the PPA.
19 Article 27 of the PPA.
20 Article 11 of the PPA.
21 Article 12 of the PPA.
22 Article 12 of the PPA. The current ceiling of compensation under the PPA is 2 billion won. But the ceiling for reporting competition law violation or tax law violation is 3 billion won (Article 3 of Guideline for Compensation of Person Who Report Competition Law Violation; Article 84-2(1) of the Framework Act on National Taxes).
23 Supreme Court of Korea, judgment 96DO2699, 14 February 1997.
24 Supreme Court of Korea, judgment 93DO344, 14 May 1993.
25 Article 756 of Civil Act (Employer's Liability for Compensation): (1) a person who employs another to perform a specific affair is liable for compensating for any loss inflicted on a third person by the employee in the course of performing the specific affair: provided, that this shall not apply where the employer has exercised due care in appointing the employee and in supervising the performance of the specific affair, or where the loss has been inflicted even if the employer has exercised due care; (2) a person who supervises the performance of a specific affair on behalf of the employer shall also assume the same liability as prescribed in paragraph (1); and (3) In cases falling under situations (1) and (2), the employer or the supervisor may claim for reimbursement from the employee.
26 Supreme Court of Korea, Judgment 97DA58538, 15 May 1998.
27 Article 22 of the Ethical Code of the Korean Bar Association.
28 Article 48 of the Criminal Act.
29 Article 27 of the Act on Contracts to Which the State is a Party.
30 Article 27(1) of the Act on Contracts to Which the State is a Party.
31 In 2016, the number of cases which KFTC imposed administrative surcharge was 111, and the total amount of surcharge imposed by KFTC was 803.8 billion won. Simple calculation shows 7.24 billion won was imposed per case. In 2015, the number was 202, and the amount was 588.9 billion won. Press Release, KFTC, 10 May 2017. (www.ftc.go.kr/news/policy/competeView.jsp?news_no=3318&news_div_cd=1).
32 Supreme Court of Korea, judgment 2009DO5516, 14 July 2011.
33 Supreme Court, judgment 92DO1395, 18 August 1992.
34 It is likely that the Supreme Court will take into account the size of the corporation and the nature of the affairs when assessing whether the corporation exercised adequate supervision over potential violation. Therefore, while smaller corporations might qualify for safe harbour through relatively simple measures such as communicating their compliance policies and manuals, holding regular meetings, and having a reporting system in place, larger-sized corporations will have to introduce more sophisticated systems, such as anti-corruption information management programmes or a comprehensive system linked to existing accounting, reporting, or training system.
35 In a case where a business allowed a minor to come into its video-watching room (which are adult-only facilities in Korea), the court accepted its justifiable cause defence that because the relevant law was so complicated and self-contradictory the business had reason to believe that the minor was legally allowed to enter the facility as a customer. Supreme Court of Korea, Judgment 2001DU3952, 24 May 2002.
In another case where an owner of a building fraudulently used the public water supply, the court accepted the justifiable cause defence because the water supply pipe in question was installed by the previous owner of the building and the current owner had no idea of the problem. Supreme Court of Korea, Judgment 98DU5972, 26 May 2000.
36 Supreme Court of Korea, Judgment 2007DO9679, 26 June 2008; Supreme Court of Korea, Judgment 2005DO9861, 8 September 2006.
37 Press Release, FSS, 26 March 2009 (www.fss.or.kr/fss/kr/promo/bodobbs_view.jsp?seqno=13460).
38 White Paper on Crimes 2016, Institute of Justice, pp242-243. (www.ioj.go.kr/homepage/information/DataAction.do?method=view).
39 Statistics, National Police Agency (www.police.go.kr/portal/main/contents.do?menuNo=200195).
40 However, in an KFTC investigation, a negotiated agreement is possible. See Article 51-2, 51-3, 51-4, and 51-5 of the Monopoly Regulation and Fair Trade Act.
41 Article 243-2(3) of the Criminal Procedure Act. The defence counsel who participates in the interrogation may make a statement on his or her opinion after interrogation: provided that the counsel may raise an objection to any unfair interrogation manner even in the middle of the interrogation and may also make a statement, with the approval from the prosecutor or the police officer.
42 The police have internal rules that allow brief note-taking by an attorney during an interrogation. Article 8(2)(4) of the Rules on the Assistance of and Interview with Counsel (National Police Agency Order, No. 702, 19 April 2013).
43 The police have internal rules that, in principle, allow witnesses to have the assistance of counsel during an interview. Article 11 of the Rules on the Assistance of and Interview with Counsel (National Police Agency Order, No. 702, 19 April 2013).
44 The full name is the Improper Solicitation and Graft Act.