1. What are some notable forms of corruption specific to the Republic of Korea?
The Republic of Korea (South Korea) is ranked 17th out of 197 countries with an overall risk score of 31 on the TRACE Matrix, which measures business bribery risk by country. Despite this low level of overall risk, certain areas in South Korea – such as its public procurement sector – carry notable risk for corruption. Due to favouritism, South Korean public funds and contracts are reportedly diverted to individuals and companies with influence. A World Bank survey of managers and owners of businesses in South Korea revealed that approximately 26 per cent of respondents were expected to give a gift in order to secure a government contract. Recently, more than 60 people were indicted on charges of accepting bribes related to a number of defence procurement projects, including projects for guns and equipment loaded onto navy ships.
Another area for heightened risk in South Korea is tax regulation, which has been described as particularly challenging and complex. Tax evasion is common, and in the World Bank Enterprise Survey for 2005, approximately 21 per cent of respondents stated that they were expected to give gifts to tax officials. Diageo plc agreed to pay USD $16.3 million to settle charges by U.S. authorities that the company allegedly paid bribes to South Korean officials, as part of tax negotiations and to receive tax rebates.
2. How do these corruption risks typically affect foreign businesses?
Burdensome, challenging regulatory schemes may lead companies to pay facilitation payments to avoid certain regulations or to encourage officials to perform tasks they are required to perform. While South Korea provides a defence for facilitation payments under its foreign anti-bribery law, facilitation payments are prohibited under domestic laws.
3. Which foreign business sectors are particularly vulnerable to corruption?
Businesses that contract directly with the South Korean government are more vulnerable to corruption. Companies from a wide variety of sectors, such as technology, aerospace and defence, and financial services, have allegedly made improper payments to South Korean officials in relation to government contracts. For example, Control Components, Inc. agreed to pay USD $18.2 million to settle charges brought by U.S. authorities that the company allegedly had paid more than USD $57,000 to officials of Korean Hydro and Nuclear Power to secure a contract with the state-owned entity.
4. How can foreign companies operating in South Korea reduce their risks of corruption?
Foreign companies looking to operate in South Korea should build and implement an effective anti-corruption compliance program. Prior to working with business partners, foreign companies should perform an anti-bribery risk analysis, to identify and assess the corruption risks presented by those relationships. Foreign companies should also thoroughly vet their business partners through a comprehensive due diligence review, analysis and approval process such as TRACE certification.
Companies may also refer to TRACEpublic, the first global register of beneficial ownership information, which allows companies to share and search for beneficial ownership information at no cost. The database supports the efforts of companies seeking to conduct business ethically.
5. What anti-bribery compliance support is available in South Korea?
The Anti-Corruption and Civil Rights Commission (ACRC) is the main anti-corruption authority in South Korea; it fights corruption in the public sector and aims to protect civil rights and interest from illegal and unfair administrative practices. Among its functions, the ACRC receives and addresses reports of corruption, and provides protection and rewards for whistleblowers. In an effort to enhance the transparency of the public-procurement process, the South Korean government has launched the Korea Online E-Procurement System (KONEPS), which aims to eliminate the ability of public officials to make arbitrary decisions.
Foreign companies can also look to the local chapter of Transparency International. Organizations such as TRACE, Transparency International and the Business Anti-Corruption Portal can provide companies with access to resources on anti-bribery compliance, wherever they are located.
This Q&A article was originally produced for ExportWise.ca, Export Development Canada’s online magazine.