On February 14, 2012, the Incheon District Court found two defendants charged with violating the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions ("Foreign Bribery Prevention Act" or "FBPA") not guilty of violating the Act. The trial of the defendants was the first of its kind under the FBPA.

  1. Structure of the FBPA

The FBPA which is a Korean equivalent of the U.S. Foreign Corrupt Practices Act ("FCPA") came into force in 1999 and only consists of five sections. Section 3 of the FBPA provides that any person who promises to pay, pays or expresses an intention to pay, a bribe to a foreign public official in order to obtain an unjust gain in relation to international business transactions shall be subject to imprisonment of five years or less or a fine up to 20 million won. Section 3 also provides that, in case the amount of the unjust gain exceeds 10 million won, such a person shall be subject to imprisonment of five years or less or a fine up to two times of the amount of the unjust gain. Unlike the FCPA, the FBPA only has a single antibribery provision and does not have any books and records or internal accounting controls provisions.

Section 4 of the FBPA provides that, if a representative, agent or employee of a corporation commits an act in violation of Section 3, the corporation shall also be subject to a fine up to one billion won. If the amount of the unjust gain exceeds 500 million won, such a corporation shall be subject to a fine up to two times of the amount of the unjust gain. However, in case the corporation has exercised a reasonable care and control to deter the violation, such corporation may escape the imposition of a fine. A 'person' under Section 3 should be interpreted to mean a natural person given that Section 4 provides that a corporation whose representative, agent or employee commits an act in violation of Section 3 shall also be subject to a fine. Section 3 of the FBPA is not triggered if the law of the foreign public official's country allows or requires the payment to the official or socalled 'facilitating payment' is made or promised to a foreign public official who is engaged in a routine governmental function for purposes of facilitating the performance of an official duty. Although Section 3(1) provides that the person who commits the violation shall be subject to imprisonment or a fine, Section 3(3) provides that, if the person who violates Section 3(1) is sentenced to imprisonment, a fine should also be imposed.  

Under Section 2 of the FBPA, a foreign public official is defined as: (1) a person who is engaged in a legislative, administrative or judicial work of a foreign government (including local government); (2) a person to whom a foreign government delegates an authority to conduct an official business; (3) a person who conducts the business of a public institute which is established to conduct a specific official business; (4) an official or an employee of a corporation in case a foreign government contributed more than 50% of the corporation's paidincapital or exercises a de facto control over the corporation as to major business decisions or appointment of officials ("StateOwned Enterprise or SOE"); and (5) a person who conducts business of a public international organization. As to SOEs under Category 4, if the corporation conducts business on an equal footing with private companies, without receiving government subsidies or other benefits from the government, such corporation is not viewed as an SOE. Section 5 of the FBPA provides that the bribe in possession of the person who violates Section 3 (including a corporation whose representative, agent or employee commits an act in violation of Section 3) shall be confiscated.

  1. China Eastern Airlines Case

In May 2011, the Inchoen District Prosecutors Office charged two individuals for bribing the CEO of a Korean subsidiary of China Eastern Airlines (hereinafter "airline CEO"). One of the individuals charged is the CEO of a logistics company and he paid approximately 3.5 billion won to the airline CEO so that his company could handle more shipments at a more favorable rate. The other individual is the CEO of a travel agency who paid the airline CEO approximately 1.4 billion won to induce the Korean subsidiary of China Eastern Airlines to allow the travel agency to issue tickets of China Eastern Airlines and to assign more tickets to the travel agency than those assigned to its competitors.

In finding the defendants not guilty of violating the FBPA, the Court held that it was not proven to the satisfaction of the Court that China Eastern Airlines is an SOE for FBPA purposes. The Court first noted that the prosecution's argument that China Eastern Airlines is an SOE is based on the documents submitted by certain employees of the Korean subsidiary. However, the employees testified in court to the effect that the truthfulness of the documents submitted cannot be guaranteed. The Court concluded that the fact that China Eastern Airlines is an SOE for the FBPA purposes was not proven beyond a reasonable doubt and that therefore the defendants are not guilty of violating the FBPA. However, based on the same acts by the defendants, the Court found them guilty of commercial bribery charges under the Criminal Code. It appears that the contentious issue in the case was whether China Eastern Airlines conducts business on an equal footing with private companies, without receiving government subsidies or other benefits from the government. After the decision is rendered, the prosecutors appealed the Court's decision that the defendants are not guilty of violating the FBPA. Although Yulchon acted on this case, the defendants who were charged with violating the FBPA were not represented by Yulchon.

Another notable aspect of this case is that the prosecutors chose not to charge the corporations. As stated above, if a representative, agent or employee of a corporation commits an act in violation of the FBPA, the corporation shall also be punished unless the corporation exercised a reasonable care and control to deter the violation. When the prosecutors decided not to charge the corporations, such a decision must therefore be based on a judgment that the corporations exercised a reasonable care to deter the violation of the FBPA by the CEOs. In this case, however, the defendants rather blatantly paid bribes to the airline CEO out of the corporate funds, and it does not appear that the corporations had an adequate internal compliance program to deter the violation of the FBPA. Nevertheless, according to a media report (Hankook Economy, October 23, 2011), the prosecutors chose not to charge the corporations and due to a concern over a possible challenge on constitutional grounds. Although the size of the corporation is not a factor which should affect the decision to charge, it remains to be seen whether the prosecutors in Korea will again consider the corporate size in making the decision on prosecution in future cases.