South Korean anti-graft reforms alone won’t resolve poor enforcement record
21 January 2020. By Wooyoung Lee, Hyung-jo Choi and Ben Lucas.
Recent changes to South Korea's anti-corruption regime that introduce tougher penalties and wire-tapping powers in foreign bribery cases are a welcome move and come in response to OECD recommendations.
But these changes don't move the needle in a significant way and they fail to strike at the heart of the problem — the country's poor track record for investigating and prosecuting foreign bribery.
South Korean authorities must be proactive in their hunt for foreign bribery cases, and the country's courts must issue the toughest sanctions possible if the world is to believe the country is serious about tackling all types of corruption.
— The changes —
On Dec. 27 and Jan. 9 the South Korean National Assembly passed two changes designed to bolster its anti-corruption regime.
The changes allow South Korean law enforcement authorities to conduct wiretaps in foreign bribery cases, where previously this power was only available in domestic bribery cases.
They also raised the maximum financial penalties for individuals and companies found guilty of foreign bribery.
The new maximum penalty for individuals has been raised from 20 million won ($17,000) to 50 million won. If, however, the value of the financial advantage gained is greater than 10 million won, the court can issue a penalty five times the value of that advantage, where previously it could only be doubled. The maximum prison sentence of five years remains unchanged.
Under the changes, companies can now be fined up to five times the value of the pecuniary advantage if it is greater than 500 million won, where previously it could only be doubled. But if the advantage is below 500 million won, the maximum penalty is 1 billion won ($855,000), the same as before.
This is the first time potential fines for foreign bribery have been increased in the 20 years since South Korea became part of the OECD Working Group on Bribery.
The revisions were made in response to recommendations in December 2018 by the OECD Working Group on Bribery which conducted a review of South Korea's implementation of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, according to the Legislation and Judiciary Committee of the National Assembly.
In the review, the OECD highlighted the low value of fines that are available in theory as well as the small penalties that have been issued in practice.
"In the four foreign bribery cases finalized between [Oct. 2011 and Dec. 2018], either no prison sentences were imposed, or they were suspended. Furthermore, the level of fines imposed was generally lower than the amount of the bribes offered, let alone the profit gained," the OECD said in the review.
"South Korea's law enforcement and punishment in foreign bribery has been significantly weak compared to those in the US and Europe," Cho Chang-hoon told MLex. "It has to do with the South Korean judiciary being too tolerant in enforcing economic crimes," said Cho, who is a member of the transparency policy advisory committee at South Korea's anti-corruption body, the Anti-Corruption and Civil Rights Commission. "Such leniency is prevalent among the judiciary, legislature and government," he added.
While changing the maximum penalty to five times the value of the advantage, issuing a fine using this method has never been applied in practice, according to the OECD. The OECD also noted a lack of official guidance and difficulties in calculating the amount of the profits derived from bribery in the first place.
— No appetite to investigate —
While the courts have failed to issue penalties that invoke fear at the board-level of companies, there has also been little appetite from the country's police and prosecutors to bring cases to court.
Of the 13 investigations since 2013, none came from investigations by South Korean authorities. Instead, five came from foreign authorities, five came from rival businesses and three came from whistleblower reports.
As noted by the OECD: "Korean law enforcement authorities demonstrate a concerning lack of initiative when it comes to detecting and proactively investigating foreign bribery."
While investigators and prosecutors have few excuses, in cases where a prosecutor investigates a crime based on a 'complaint or accusation', they must decide whether to prosecute within three months. While this is not an absolute obstacle in practice, prosecutors said this was why they were not willing to file mutual legal assistance requests with other countries. Of the 13 foreign bribery cases, Korea only filed one mutual legal assistance request. Such requests are crucial in many cross-jurisdictional crime cases.
In its review, the OECD also cited some restrictive definitions in law in foreign bribery prosecutions. But these could be properly challenged if prosecutors brought more cases in the first place.
"The problem is we don't have that many precedents to determine the effectiveness of the law," said Jung Ho-chul, a coordinator at Citizens' Coalition for Economic Justice, a South Korean campaign group. "While the law has been promulgated and put in place, the application of the law on actual cases is low," Jung told MLex.
— A focus on domestic bribery —
In recent years South Korea's bribery focus has been on domestic incidents involving high-level public officials rather than targeting the private sector.
For example, in September 2016, the government passed the Improper Solicitation and Graft Act, which is known as the "Kim Young-ran law" and named after the former head of the Anti-corruption and Civil Rights Commission. Its focus, however, is on domestic corruption by imposing boundaries and limits on the financial and non-financial gifts public employees can receive.
In addition, the political drama surrounding the passage of a law on Dec. 30 designed to create a new anti-corruption agency solely aimed at investigating corruption among high-ranking government officials shows the domestic focus remains. The agency could launch as early as July.
While South Korean companies and business groups are well aware that, under South Korean law, they are liable for the corrupt acts of their employees, they "overwhelmingly expressed greater concern with enforcement from foreign jurisdictions, such as the UK and the US, than from Korean authorities," the OECD said.
The recent $75 million penalty levied by US Department of Justice penalty against Samsung Heavy Industries — which "paid millions of dollars in bribes, via a Brazilian intermediary, to Petrobras executives to obtain a lucrative shipbuilding contract — shows their concerns are well placed.
But Seoul should look to change that, by properly holding South Korean companies to account and punish them when engaged in foreign corruption.