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FCPA Blog Daily News

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Monday
Jan232017

Sungyong Kang: Can Korea ever clean up the Chaebol Republic?

In the midst of Korea's influence-peddling scandal involving President Park, her close associates, and chaebols (family run conglomerates such as Samsung and Hyundai), the country enacted a new anti-corruption law criminalizing graft and solicitation without the need to prove the bribe payer expected anything in return.

The new Kim Youngran law can't be applied to the current scandal. Pushback from diverse sectors in Korean society delayed enforcement of the law until September last year.

But it's worth questioning whether the law would have deterred this grand corruption if it had been enforced earlier. We can also look at what to expect from the Kim Youngran law going forward.

Korea has a chaebol-centralized social and business structure to the degree that the term Chaebol Republic is widely used. The top 10 conglomerates controlled by chaebols take up more than half the total value of the companies listed on the Korea Stock Exchange.

The power of chaebols is not limited to the economy but expands out to Korean society, where it has built up a preferential business environment. This has created the culture of collusion between the political and business sectors.

Powerful politicians and high-level appointed officials may come and go. But the chaebols remain constantly powerful and continue to exert their influence.

Chaebols inherit power. Generation after generation, they repeatedly continue their corrupt practices. In some cases, multiple generations of chaebol leaders (the current CEO and his father and grandfather) have appeared as witnesses in congressional hearings probing grand corruption scandals.

Thus, a fundamental step to break the cycle of grand corruption in Korea must focus on the personal criminal liability of the individuals who run the chaebols.

The Kim Youngran law does not require a quid-pro-quo element and so it raises the possibility of the successful indictment of individuals offering and accepting corrupt payments or favors, whether or not they personally benefited.

In addition, Article 24 of the new law provides for the vicarious liability of employers (either legal person or individuals). This liability overcomes the obstacle of proving corporate knowledge of employers about corruption. That is a defense commonly asserted by big organizations, as reflected in the consistent “I didn’t know” testimonies of the chaebol executives who have been witnesses at congressional hearings.

However, Article 24 also creates a due diligence defense that employers can use to defend themselves. They only need to prove their lack of negligence to escape prosecution.

In addition, imprisonment is not possible in Korea for convictions based on vicarious liability. And the maximum penalty for employers under the new law is a criminal fine of KRW 30 million ($25,000) and possible forfeiture of the proceeds of the crime. Those penalties seem too lenient to deter grand corruptions where a high amount of financial gain is involved.

Although the Kim Youngran law was well intentioned and has some good features, its weaknesses probably mean it will have only a limited deterrent effect on grand corruption in the Chaebol Republic.

____

Sungyong Kang is an Inspector for the Korea National Police where he investigates high-profile white collar crimes. He is currently researching anti-corruption and anti-money laundering as an SJD fellow at Fordham Law after receiving his LLM at NYU Law.