On April 29, 2021, a general session of the National Assembly passed the Act on the Prevention of Public Officials' Conflict of Interest (the "Conflict of Interest Act"). The primary aim of the new law is to prohibit public officials from pursuing personal interests by using their official authority or any information gained in the course of carrying out their official duties.
The approved bill is expected to be formally conveyed to the Office of the President and will be deemed promulgated within 15 days thereafter. The Conflict of Interest Act will enter into force one year after its promulgation.
Background to Passage
Provisions regarding conflict of interest for public officials were originally part of the original bill for the Improper Solicitation and Graft Act (the "Anti-Graft Act") in 2013. However, the provisions relating conflict of interest were removed from the initial draft bill based on the view of some legislators that the scope of the "public official's duties" subject to the provisions was ambiguous. As a result, the final version of the Anti-Graft Act enacted in 2016 did not contain provisions governing conflict of interest.
Since then, there have been multiple high-profile conflict of interest cases which drew national attention, including cases of real estate speculation by various public officials, including members of the National Assembly. In the aftermath of these cases, on June 25, 2020, the Anti-Corruption and Civil Rights Commission submitted a draft bill on the Conflict of Interest Act to the National Assembly.
During the initial legislation process, progress on the proposed bill was stalled until around March 2021, when media reports disclosed a real estate speculation scandal involving officials at the Korea Land and Housing Corp. ("LH"), who were using non-public information for the purchase of undeveloped land around Seoul, where several new residential development project were being planned. According to news reports, officers and employees of LH, a government-owned corporation responsible for public land development and housing construction, allegedly used insider information to purchase land worth about KRW 10 billion (approximately USD 8.88 million) in the areas of Gwangmyeong and Siheung, before they were announced by the government as designated sites for new major housing development projects.
Before the LH scandal broke, the government and majority party were already under severe criticism for implementing policies which had failed to control skyrocketing real estate prices and had led to a housing crisis for middle and low income households. Against this background, the scandal prompted a widespread public backlash, and calls for relevant officials and individuals to be punished. The scandal also created momentum for the passage of the Conflict of Interest Act, in light of the difficulties faced by the authorities to sanction the LH employees and recover illicit profits under existing laws.
Key Provisions
The Conflict of Interest Act operates by creating certain reporting and disclosure obligations on public officials and senior officials, as well as imposing a prohibition against officials in engaging in certain types of transactions.
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"Public officials" refer to public officers and executives or employees of public institutions. "Public officials" include officials of government ministries and agencies, state-owned enterprises, as well as persons who are deemed to perform public functions, including public school officials and teachers. Unlike the Anti-Graft Act, the term does not cover members of the media and officials and teachers at private schools.
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"Senior officials" include heads of national and local governments (including the President, members of the National Council, and members of the National Assembly), public officials of vice-minister level or higher, judges of the Appeals Court-level or higher, prosecutors of the Supreme Prosecutors' Office-level or higher, or heads of public enterprises.
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The key obligations imposed on public officials and/or senior officials include: (i) reporting personally interested parties, (ii) reporting ownership and purchase of real property, (iii) disclosing work activities conducted in the private sector, (iv) refraining from use of confidential information obtained in the course of carrying out public duties, and (v) reporting personal contact with retired public officials.
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Reporting personally interested parties
If a public official becomes aware that a person who is relevant to the performance of the public official's duties is someone with whom he/she has a personal relationship which would give rise to conflicts of interest, the public official must report this to the head of the organization to which he/she belongs within 14 days of becoming aware of the conflict of interest, and request his/her removal from the work or matter where there is a conflict of interest.
In addition, persons who are directly related to the duties of a public official may make a request to the head of the public official's organization for the public official to be excluded/recused from the relevant matter.
In this context, "personally interested parties" who would be subject to the above reporting can include (i) the public official himself/herself or his/her family, (ii) a corporation or organization in which the public official or his/her family serves as an officer, representative, manager or outside director, (iii) a corporation or organization in which the public official or his/her family was employed within two years prior to the public official's appointment to office, or (iv) a person, corporation or organization for whom the public official used to work as an agent or advisor.
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Reporting ownership and purchase of real property
Public officials of a public institution who directly handle real property must report in writing to the head of the organization if he/she or his/her family owns or purchases real property in relation to the work of the public institution.
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Disclosing work activities conducted in the private sector
If a senior official engages in activities in the private sector within the three years preceding the date of his/her appointment to office, the senior official must submit detailed statements of the senior official’s private sector work activities to the head of the organization.
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Refraining from use of confidential information obtained in the course of carrying out public duties
A public official must not accrue or cause a third party to accrue financial benefits through the use of confidential information obtained in the course of performing his/her duties or non-public information of public organizations. In this context, "public officials" also include former public officials who left public service within the last three years. If a public official violates this provision, he/she will be subject to imprisonment for up to seven years or a fine of up to KRW 70 million. In addition, the government is entitled to recover any illicit profit obtained from the relevant misconduct. A third party who improperly accrues financial benefits by using confidential or non-public information obtained by a public official in the course of performing his/her duties will be subject to imprisonment for up to five years or a fine of up to KRW 50 million, with the government entitled to recover illicit profits.
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Reporting personal contact with former public officials
If a public official contacts a former public official from his/her organization within two years after the former public official's departure, including for personal reasons such as golf, travel, and entertainment, he/she must report such contact to the head of the organization, except where such contract is permitted by social customs.
Implications
Through the introduction of the Conflict of Interest Act, we expect that there will be increased scrutiny of all interactions involving public officials, especially where personal relationships are involved. Therefore, we would advise that companies regularly dealing with public officials and/or public entities proactively implement preventive measures, such as detailed, transparent codes of conduct and policies addressing conflicts of interest, detailed training sessions, and guidelines for monitoring the enforcement of the relevant policies.
