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South Korea prepares for far-reaching anti-bribery changes

South Korea prepares for far-reaching anti-bribery changes

South Korea’s new anti-bribery regime will come into effect this time next week, introducing far-reaching changes to the country’s anti-bribery landscape. Although the law has failed to satisfy everyone, with many commentators still demanding further clarification, it should be welcomed by companies as a positive step in the right direction.

On 26 March 2015, the South Korean Government passed the ‘Act on the Prohibition of Illegal Solicitations and the Prevention of Conflicts of Interest of Public Officials’. Passage of the ‘Kim Young-ran Law’, as it is known, has been far from smooth, with various groups taking issue with some of the more controversial elements of the new legislation.

The most controversial aspect of the new law is the broader definition of the term ‘public servant’. More than four million individuals will now carry the ‘public servant’ label, including civil servants, court officials, employees of central and local governments and government-owned institutions, and, more controversially, journalists, public school teachers, and directors and teachers at private schools.

The Korean Federation of Teacher’s Associations (KFTA) even filed an unconstitutionality suit against the inclusion of private-school teachers, with KFTA spokesperson Kim Dong-seok saying: “There already exists a law that punishes teachers or tutors from receiving bribes; is the inclusion of teachers in [the Act] not a double punishment, or in excess of what we need?”

In July this year, South Korea’s Constitutional Court rejected the suit citing ‘public interest’ as its main reason. Hong Kong-based Kyle Wombolt, global head of corporate crime and investigations at Herbert Smith Freehills, said: “The Court noted that educators and journalists should be covered by the law, given the extensive and long-lasting damage that can occur to society if they are involved in any form of corruption.”

Other key changes to South Korea’s new anti-bribery regime include a new strict liability offence. This prohibits the provision of a benefit to a public official where that benefit is either:

  1. valued in excess of KRW1 million (US$900); or
  2. valued in excess of KRW3 million (US$2,700) over a one-year period, when aggregated with other benefits from the same source.

The new law is a departure from the country’s Criminal Code by effectively removing the evidentiary requirement to prove a direct link between the acceptance of a gift and a subsequent favour. And it has also introduced new monetary limits on gifts and entertainment. These include exemption thresholds at KRW30,000 (US$27) for meals, KRW50,000 (US$45) for gifts and KRW100,000 (US$90) for congratulatory or condolence money. “This is expected to bring significant changes to Korean business culture,” said Wombolt.

The new anti-bribery regime is very similar to the United States Foreign Corrupt Practices Act (FCPA) and the United Kingdom Bribery Act in that it introduces the idea of corporate liability for private companies. And, as under the latter, it also provides a defence for those companies that are able to prove that they took preventative measures by implementing anti-corruption codes of conduct or similar.

Finally, individuals who provide cash or gifts valued at more than KRW1 million at any one time face imprisonment for up to three years or a fine of up to KRW30 million (US$27,000). “And an individual who provides cash or gifts valued at more than KRW1 million but less than KRW3 million during any given fiscal year can be fined between two and five times the value of the bribe,” added Wombolt.

Although the South Korean public consider the new anti-bribery regime to be a positive step in the right direction to purify some of the corruption in the country’s economy, there remain concerns that the inclusion of educators and journalists as ‘government officials’ could result in a backlash should there be related indictments.

Critics of the new law included the Korean Bar Association (KBA). At the time of the Act’s passing, it argued that the Act had unconstitutional elements, especially that the scope of ‘corruption’ was too broad. At a press conference, a KBA spokesperson stated that the Association believed that “the Court has too much power when dealing with a corruption case because the word ‘corruption’ is used very ambiguously in the Act”.

Only time will tell whether such concerns are valid. In the meantime, companies operating or investing in South Korea should ensure that they undertake a comprehensive review of their compliance policies to address the requirements of the new law.