What do the following scenarios have in common?
A Korean subsidiary of a foreign telecommunications company receives faulty equipment from a customer in Korea. It sends the faulty equipment to its repair facility in Japan to be repaired and then returned to the customer in Korea. The company fails to report the shipping of that broken equipment to any Korean government authorities.
Another Korean subsidiary conducts a variety of business transactions with its foreign parent company and sister company. No cash is exchanged. The companies set off their payables and receivables by adjusting the inter-company accounts on their books. They do not report those adjustments to a foreign exchange bank.
A foreign company operating in Korea is interested in securing a contract with a privately-owned Korean company. The foreign company is competing with other companies to obtain the contract. To improve its odds of winning the contract, the foreign company flies the CEO of the Korean company to Jeju Island for a weekend of golf. The Korean company CEO decides to award the contract to the foreign company that provided the golf outing, even though that company did not submit the lowest bid for the work.
Finally, the building lease of a Korean subsidiary of a foreign company is going to expire soon. The company needs to either renew its lease or find new space to lease. The company offices currently are located near Seoul City Hall, but the company's Representative Director resides in Gangnam and has a lengthy commute to work each day. The person charged with investigating available office space identifies a number of different properties that will be available for the company to lease. One of them is located in Gangnam, closer to the residence of the Representative Director. But that space is more expensive than renewing the existing lease. Nevertheless, the Representative Director decides to lease the property in Gangnam, reasoning that it will reduce his commute time and allow him to spend more time doing work on behalf of the company.
The answer to the question above is that all of these companies and/or their officers may have unwittingly violated Korean criminal law. In the first scenario, the company that sent broken telecommunications equipment overseas for repairs may have violated Korean export control laws. In the second scenario, the setting off of inter-company debts without reporting and receiving authorization from a foreign exchange bank or the Bank of Korea may have violated currency exchange laws. In the third scenario, Korean gift-giving laws may have been violated. Finally, in the last scenario, a claim might be made that the Representative Director of the company has engaged in a breach of trust owed to the company.
Criminal laws in Korea often carry with them fines and even jail time. Moreover, the Representative Director of a company in Korea can personally be held criminally liable for company violations of Korean criminal laws.
Korean civil and criminal laws may be quite different from the laws of the country where a foreign company has incorporated. Quite unexpectedly, conduct that would be perfectly legal in one’s home country may give rise to criminal or civil liabilities in Korea. Therefore, it is not surprising that foreign companies frequently violate Korean criminal laws that they did not know existed. Oftentimes the company learns about the law for the first time when it is contacted by a police investigator at the beginning of a criminal investigation of the company.
For this reason, it is important for foreign companies operating in Korea to educate themselves as to local laws that might apply to them. They should identify laws that may be applicable to their particular industry, as well as laws that would apply across the board to any company operating a business in Korea. Then they should educate their personnel about those laws so that they comply with them in their business operations. A small amount of time and money invested in becoming familiar with such laws and preventing violations can save much greater amounts of time and money that would be needed to defend the company and its officers if a criminal investigation takes place.
Kurt B. Gerstner is a senior foreign legal consultant at Lee International IP & Law Group, one of Korea’s oldest law firms.