It has been recently reported that the U.S. Department of Justice and the U.S. Securities and Exchange Commission have been investigating a U.S. company for allegedly bribing Chinese officials in violation of the U.S. Foreign Corrupt Practices Act (the “FCPA”). U.S. federal regulators have been expanding FCPA enforcement as more companies have moved into international markets. Korean companies engaged in international business transactions should be wary of potential FCPA violations as the FCPA may also apply to foreign entities, such as a foreign subsidiary of a U.S. company, a foreign company that has a U.S. branch office, a foreign company with a class of securities listed on securities exchange in the United States, or a foreign company that transfers funds through the U.S. banking system. FCPA violations and FCPA scrutiny can have serious negative impacts on the business of a company, adversely affecting the company’s stock price or credit ratings in addition to resulting in substantial amount of fine and penalty.

In Korea, Act on Combating Bribery of Foreign Public Officials in International Business Transactions (the “Act”) was enacted in 1998 in an effort to prevent corrupt practices in international business transactions. Until recently, Korean regulators have addressed foreign bribery as a matter of embezzlement or breach of duty, but they increasingly apply the Act to foreign bribery cases and are likely to further expand its enforcement. Recently a Korean logistics company has been prosecuted under the Act for making a corrupt payment to an officer of a foreign public airline company.

Under Article 4 of the Act, in the event that officers or employees of a company commit bribery in the course of conducting business of the company, not only shall such officers or employees be punished under the Act, but the company itself shall also be subject to penalties under the Act, which may amount to a fine in the amount equivalent to twice the pecuniary advantage obtained by such offense if the pecuniary advantage exceeds five hundred million Korean won. Article 4 of the Act, however, further provides that the company will be exempt from the aforementioned penalties, if it has taken reasonable care or supervision in order to prevent offenses. Therefore in order to address the bribery risks and avoid penalties under the Act, companies should have in place compliance program to prevent, and educate its employees against, corrupt business practices.