Enforcement agencies and corporate liability
Government agenciesWhat government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?
The government agencies principally responsible for enforcing civil and criminal laws and regulations applicable to businesses are the following:
- the Korean National Police Agency (NPA);
- the Korean Prosecutors’ Office (PO);
- the Korean Fair Trade Commission (FTC);
- the Korean Financial Supervisory Service (FSS) and the Korean Financial Services Commission (FSC); and
- the Korean Securities and Futures Commission (SFC).
What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?
The NPA and the PO both have the authority to investigate crime. According to the Criminal Procedure Act, NPA investigators should receive instructions from a prosecutor with regard to all investigations. In practice, the NPA conducts a basic and first-phase investigation, and the PO conducts a corroborative investigation and brings charges. When the NPA sends the investigation report to the PO, the PO decides whether to conduct further investigations or bring a charge. In the former case, the PO sends the case to the NPA with investigation directions, or conducts further investigations itself. However, the PO may initiate investigations independently in more complex and high-profile matters, including bribery cases and those involving high-ranking officials, politicians or corporate executives.
The PO and the NPA reached an agreement for restructuring criminal investigations on 21 June 2018. According to the agreement, the NPA will be authorised to close cases and will be independent from the PO in conducting investigations. Although the agreement gives the NPA the right to end an investigation without transferring it to the PO, the NPA must still transfer a case if so demanded by the parties involved. The PO retains the sole right to seek prosecution and to apply for warrants, but much of its investigative powers will be reduced.
The FTC has the authority to investigate violations of the Monopoly Regulation and Fair Trade Act, including - but not limited to - abuse of market-dominating positions, mergers, unfair collaborative acts or unfair trade practices. After the investigation, the FTC may determine a scheme for correction and recommend that the enterpriser or enterpriser’s organisation comply with it, and impose surcharges under this Act. If the alleged violation of the Monopoly Regulation and Fair Trade Act is severe, the FTC can consider filing a complaint. In such a case, the PO can prosecute only after the FTC files a complaint.
The FSS inspects and supervises financial institutions under the FSC’s or SFC’s guidance and supervision. The FSS may demand reports concerning the business affairs and financial status of an institution; order the head of the institution concerned to take corrective action; demand disciplinary punishment for the staff concerned; revoke authorisation for business; or propose that the FSC issue orders to suspend the unlawful conduct or the business.
The FSC investigates violations of the Financial Investment Services and Capital Markets Act, and can file charges with the investigation authorities; notify them of the violation; issue fines; revoke authorisation for business; suspend service of financial institutions; and sanction individuals.
The SFC may assign an investigative officer from among the public officials of the FSC to interrogate a suspect involved in a violation of the Financial Investment Services and Capital Markets Act, seize goods or search his or her place of business. Based on the investigation, the SFC can file a complaint with the PO, in addition to issuing fines.
The agencies typically pursue actions against corporate employees and the company itself for more aggressive investigation and search and seizure exercises.
Although there is no general vicarious liability provision in the Criminal Act, dual liability applies to quite a few crimes as stipulated in the individual provisions and laws (see question 5).
Simultaneous investigationsCan multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?
Multiple government entities can simultaneously investigate the same target business. In fact, agencies often cooperate in order to ensure the effectiveness and efficiency of investigations. Agencies share information obtained from the target and investigation strategies. There is no guideline or governing law regulating what type of information can be shared or under what conditions.
Civil foraIn what fora can civil charges be brought? In what fora can criminal charges be brought?
Both civil and criminal charges must be brought in the courts. Although there is no physical division of the civil and criminal courts, there are technical divisions.
Corporate criminal liabilityIs there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?
Under criminal law, there is no general provision related to corporate criminal liability. Instead, joint penalty provisions are construed as the legal basis of corporate criminal liability.
Under joint penalty provisions, if a representative of the corporation - or an agent, employee or any other person working for the corporation - has violated the law, the violator will be punished and the corporation will face a fine.
To prevent the application of joint penalty provisions, the corporation must prove that it has exercised due diligence and supervision of the relevant duties.
Bringing chargesMust the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?
The PO holds sole authority and discretion regarding whether to bring criminal charges under prosecutorial monopoly, with a few exceptions. When making a prosecution decision, a prosecutor may consider various factors, including the seriousness of the crime, the relation to the victim, the motive for committing the crime, the means and the result, and the impact of the crime. Thus, the pervasiveness of wrongdoing, the corporate history of misconduct, timely and voluntary disclosures, the effectiveness of a pre-existing compliance programme and collateral consequences to a corporate prosecution can affect the prosecutor’s decision.
Initiation of an investigation
Investigation requirementsWhat requirements must be met before a government entity can commence a civil or criminal investigation?
If there is a suspicion that an offence has been committed, a prosecutor will investigate the offender, the facts of the offence and the evidence. Commencing a PO or NPA investigation requires the suspicion of crime and the possibility of prosecution.
The FTC may investigate ex officio when it identifies potential Monopoly Regulation or Fair Trade Act violations.
The FSC may require the governor of the FSS to investigate account books, documents and other materials if there is a violation of the Financial Investment Services and Capital Markets Act, if an order is issued or disposition made pursuant to this Act or if it is deemed necessary to protect investors or maintain sound trading practices.
If a violation involves insider trading, market manipulation, unfair trading, market disturbances or short sales of listed securities, the SFC may commence an investigation through investigative officials at the FSC.
Triggering eventsWhat events commonly trigger a government investigation? Do different enforcement entities have different triggering events?
In general, an accusation by a victim or charge by a third party can trigger a PO or NPA investigation.
Whistle-blowing commonly triggers government investigations into corporate crimes.
Regarding an unfair collaborative act, a person who has voluntarily reported a crime in exchange for leniency can trigger such an investigation.
With respect to insider trading, an internal investigation of stock trading records by authorities can trigger an investigation.
WhistleblowersWhat protections are whistle-blowers entitled to?
There is no unified whistle-blower protection act, but the individual acts below provide some provisions to protect whistle-blowers in various situations:
- The Protection of Public Interest Reporters Act defines a public whistle-blower as a person who works or worked for a public institution, enterprise, listed corporation or organisation, or a person who conducts or conducted affairs in accordance with a construction or service contract or any other contract entered into with a public institution, enterprise, corporation or organisation. The Act’s protections include omission of personal information, personal protection measures, prohibition of disadvantageous measures and preferential consideration of personnel action.
- The Act on the Prevention of Corruption and the Establishment and Management of the Anti-Corruption and Civil Rights Commission guarantees the whistle-blower’s position, prohibits discrimination or retaliation in working conditions, guarantees personal safety and protects supporters.
- The Korean Improper Solicitation and Graft Act prohibits blocking of reporting or cooperation, coercing a whistle-blower to withdraw the reporting or cooperation and disadvantageous measures.
- The Korean Financial Investment Services and Capital Markets Act protects a whistle-blower’s identity, and prohibits direct or indirect retaliatory or otherwise negative treatment.
At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?
The NPA and the PO typically acknowledge investigations publicly after summoning a suspect or commencing a search and seizure. They often have conferences to inform the public of the investigation and key progress thereof. The company also sometimes holds a press conference to protect its reputation, and manage public and investor relations.
The FTC typically acknowledges an investigation after it has been concluded. In cases of serious violation, the FTC generally files a complaint with the PO after completion of the investigation.
The FSS will typically come forward after conducting an on-site investigation or proposing that the FSC issue orders to suspend the unlawful conduct or the business. The SFC publicly acknowledges an investigation after filing a charge or notifying the investigation authorities.
Evidence gathering and investigative techniques
Covert phaseIs there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?
In most cases, there is a covert phase before the government approaches the target business. The period for the covert investigation depends on the situation and varies by case - it could be a few weeks, but the authorities will conduct the investigation covertly for more than a year in a complex and large-scale matter.
What investigative techniques are used during the covert phase?
The most common technique is an interview with people who have specific knowledge and information about the matter under investigation. During the interview, investigators collect as much information as they can. This process can progress without the specific target’s knowledge. When meaningful contacts or clues are procured, the government will expand its investigation using those leads, even in the covert phase.
Publicly accessible documents about the target (as many as possible at the starting point) are also collected.
Investigation notificationAfter a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?
After a target business becomes aware of a government investigation, it should direct its in-house and outside counsel to promptly conduct an internal investigation. The purpose of the internal investigation is to find key facts about the potential investigation or allegations and to make determinations regarding potential defences, as well as to avoid a misunderstanding by the authorities.
To conduct an internal investigation effectively, the business should preserve, collect and review relevant documents (although there is no US-style discovery system in Korea). Documents should be reviewed and evaluated efficiently by using search terms. After reviewing the relevant documents, or while the review is ongoing, counsel should interview relevant personnel or custodians.
When the internal investigation is completed, counsel can prepare a White Paper or a brief report that will be given to the investigation authorities to help their understanding of the case.
Evidence and materialsMust the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?
There are no statutory obligations to preserve documents, recorded communications or other materials in connection with a government investigation. A target business discarding or destroying those materials does not constitute a crime, to the extent that such conduct meets the technical requirements of protection under the right against self-incrimination. However, destruction, concealment or counterfeiting by a third party may constitute a crime. Thus, when a target business is involved in a crime, an officer or an employee of the target business who is not a direct target of the crime may not destroy those materials. Meanwhile, if a target business destroys evidence, this may be considered an aggravating factor in determining prosecution or penalty.
Practically speaking, it is recommended that the target business preserve those materials.
Providing evidenceDuring the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?
There is no limit on the types of materials that a government entity can obtain through search and seizure - these can be any kind of document, record or recorded communication. Furthermore, related laws, such as the Monopoly Regulation and Fair Trade Act or the Act on the Establishment, etc. of Financial Services Commission, do not restrict the types of materials that the government can require.
The Personal Information Protection Act provides that a personal information manager may use personal information or provide a third party with such information for a purpose other than that intended when it is necessary to investigate a crime, and when that information will sustain a public prosecution, unless the interests of the owner of information or the third party are likely to be unduly infringed.
On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?
When the government demands that materials be voluntarily submitted, the target business can oppose such a demand. However, if such a demand is made under a search and seizure warrant and conducted by the PO, the target business cannot oppose it.
There is no concept similar to US-style privilege in Korea. The Korean Supreme Court has held that there are no legal grounds to recognise attorney-client privilege under the Constitution of Korea or the Criminal Procedure Act in criminal cases. As a result, all materials, including legal advice from an in-house or outside counsel, may be obtained through the PO’s search and seizure process.
Employee testimonyMay the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?
The government cannot compel testimony of employees of the target business because the Constitution guarantees the right against self-incrimination, providing that no citizen shall be compelled to testify against himself or herself in criminal cases. A prosecutor or a police officer must inform a criminal suspect before interrogation that the suspect has the right to remain silent or make no statement for each question. Nevertheless, if necessary for the investigation, the prosecutor or the police officer may request any person other than a criminal suspect to make an appearance to give a statement of facts. Although a witness must appear before the court at the trial and may face an administrative fine, he or she may refuse to testify if put in confinement or taken into custody for failure to appear.
In practice, the investigation authorities encourage a target business’s employees to cooperate voluntarily with the investigation.
Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?
The fact that the target business is represented by counsel does not mean that its employees are represented by the same counsel. Employees need to appoint the target business’s counsel as their counsel too if they want that counsel to represent them. In many cases, a conflict of interest will arise between the target business and its employees, so the employees should obtain their own legal counsel. While it is advisable for key employees closest to the facts to retain separate counsel early on, counsel participation is very limited in the earlier stage before the employee is identified as the ‘target’ of the investigation and many in practice do not retain counsel for that reason.
Sharing informationWhere the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?
Target businesses may share information to assist in their defence. However, shared information is not protected, such as under the joint defence privilege recognised in certain common law jurisdictions, as there is no concept of privilege in Korea. Target businesses that want to share information should always consider the potentially negative consequences such as allegations of obstructing the investigation. Thus, target businesses are advised to share information only under the counsel of a lawyer.
Investor notificationAt what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?
If a company becomes the target of any government disciplinary action, it should immediately notify its investors. Many laws oblige the company to notify investors.
The Financial Holding Companies Act requires that a financial holding company publish matters regarding cautions, warnings or corrective orders for the violation as a necessary measure to protect its subsidiaries’ investors in a manner prescribed by the FSC.
The Banking Act provides that a bank must disclose matters to the general public regarding corrective orders for the violation or partial suspension of business that are necessary to protect its investors as determined by the FSC.
The Financial Investment Services and Capital Markets Act provides that an exchange shall prescribe the Disclosure Regulations of Stock-Listed Corporations. Accordingly, the Disclosure Regulations require disclosure of matters regarding business or manufacturing activities, financial structure or corporate management activities that may significantly affect stock prices or investors’ investment decisions.
The Monopoly Regulation and Fair Trade Act provides that the FTC may order any company that has violated the prohibition on certain unlawful practices to publish the fact that it has been ordered to take corrective measures.
In developing the content of those disclosures, the target should consider a summary of the facts occurred, the future prospects thereof, and related matters that may affect investors’ decisions.
Cooperation
Notification before investigationIs there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?
With regard to unfair collaboration, the Monopoly Regulation and Fair Trade Act provides a statutory leniency system, which means that a target business can notify the government of its potential wrongdoing before a government investigation has commenced.
In general criminal investigations there exists no statutory mechanism to guarantee that cooperation with the investigation will mitigate the risk of charge or prosecution, such as plea bargaining in the US system. However, full cooperation and cooperation early in an investigation increase the possibility of mitigating risks in the criminal procedures.
Voluntary disclosure programmesDo the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?
Generally, there are no formal voluntary disclosure programmes offered to businesses for amnesty or reduced sanctions. However, proactive steps are recognised and factored in as a practical matter at various stages of investigation and prosecution, such as voluntary submission instead of dawn raids, deciding whether to file charges and the court’s discretion on sentencing.
One area that provides a more specific leniency programme is antitrust. With respect to unfair collaboration in an antitrust or competition investigation context, the Monopoly Regulation and Fair Trade Act provides a statutory leniency system. Namely, a person who reports voluntarily on the unfair collaboration or cooperates in the investigation by furnishing evidence or by any other means can have corrective measures or the penalty surcharge imposed by the FTC mitigated or exempted. Specifically, the first reporting party can receive complete immunity from the corrective measures or the penalty surcharge, and the second reporting party can receive a 50 per cent reduction of the penalty surcharge or mitigated corrective measures.
Timing of cooperationCan a target business commence cooperation at any stage of the investigation?
A target business can voluntarily cooperate at any stage of the investigation. Although there is no statutory preferential treatment for such cooperation, early voluntary cooperation in the investigation may positively affect the target business.
Cooperation requirementsWhat is a target business generally required to do to fulfil its obligation to cooperate?
There is no general requirement for a target business to cooperate with an investigation. In practice, a target business that wants to cooperate would submit sufficient evidence to support the investigating authority’s decision on whether there has been a violation of the law.
Employee requirementsWhen a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?
There is no statutory requirement regarding this. While some target corporations have paid for or reimbursed attorneys’ fees to their employees, a growing number of companies are restricted from doing so under their articles of incorporation or by-laws. Government investigators typically consider payment by the target corporation as an unfavourable factor in evaluating allegations because it does not affect the charge against the company of illegal conduct and is not relevant when proving this charge.
Why cooperate?What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?
Under the Labour Standards Act, an employer cannot - without justifiable cause - dismiss, lay off, suspend or transfer a worker, reduce wages or take other punitive measures against an employee. The law essentially prohibits unfair dismissal, so an employee will have legal protection when he or she cooperates with a government investigation. Nevertheless, the employee may be subject to disciplinary actions or unfair dismissal by the employer for cooperating. In such a case, the employee may request a remedy from the Korean Labour Relations Commission.
Privileged communicationsHow does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?
There is no US-style attorney-client privilege or attorney work product protection in Korea. The Korean Supreme Court has held that there are no legal grounds to recognise attorney-client privilege under the Constitution or the Criminal Procedure Act in criminal cases.
Resolution
Resolution mechanismsWhat mechanisms are available to resolve a government investigation?
The PO has broad discretion not to criminally charge a corporation.
During the criminal investigation, plea bargaining or negotiations are not allowed. If a prosecutor determines that there is not enough evidence to prove a crime, he or she will drop the case before indictment. Sometimes, even though there is evidence to prove the crime, the prosecutor will suspend indictment after consideration of the relation to the victim, the motive for the crime, the means and the result, and the impact of the crime.
When the prosecutor indicts a corporation, the criminal trial begins. The criminal court judges will decide whether the defendant has committed an indicted crime and the potential penalty.
Admission of wrongdoingIs an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?
There is no system of plea bargaining or plea negotiations, but the PO and the NPA generally require an admission of wrongdoing to resolve an investigation of a corporation.
If a target business admits wrongdoing, the admission can be used against it in civil litigation.
Civil penaltiesWhat civil penalties can be imposed on businesses?
There is no civil penalty system.
Criminal penaltiesWhat criminal penalties can be imposed on businesses?
A monetary fine may be imposed on the corporation under joint penalty provisions.
Sentencing regimeWhat is the applicable sentencing regime for businesses?
Each crime under criminal law has an applicable sentencing range. The PO also has an internal guideline for demanding sentencing. In every criminal case, a trial prosecutor demands sentencing in the closing argument at trial. However, judges are not bound by the prosecutor’s demands and can decide the sentence by considering the nature of the matter and the sentencing in similar preceding cases.
Future participationWhat does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?
In general, an admission of wrongdoing in itself does not affect a business’s future participation in particular ventures or industries. However, sometimes government authorities require the business to obtain specific licences or permissions for the operation of certain functions. In this case, an admission of wrongdoing may result in a guilty judgment, which in turn may cause such licences or permissions to be cancelled.
UPDATES & TRENDS
Recent developmentsAre there any emerging trends or hot topics that may affect government investigations in your jurisdiction in the foreseeable future?
Emerging trends34 Are there any emerging trends or hot topics that may affect government investigations in your jurisdiction in the foreseeable future?No updates at this time.
This article was written as a collaborative project between Lee & Ko and Kobre & Kim. Lee & Ko contributed summaries of Korean law, and Kobre & Kim contributed thoughts on general government enforcement defence and internal investigation strategies from its international practice experience.
