The amendment to the Act on Control and Aggravated Punishment of Environmental Offenses (the “Amended Act”) and its Enforcement Decree (the “Amended Enforcement Decree”) became effective on November 27, 2020, allowing  imposition of significantly strengthened penalties for major environmental offenses. 

Under the Amended Act, if a business manipulates measurement data while emitting hazardous substances or operates a facility that discharges regulated pollutants without necessary permit(s), the business would be subject to penalties of up to 5% of sales amount as well as the associated remediation costs.  However, this strengthened penalty provision will not be applicable to conducts that had occurred prior to the effective date of the Amended Act. 

We summarize below the details of the applicable penalties under the Amended Act and the Amended Enforcement Decree:

1.   Expanded Scope of Offenses Subject to Penalties and Increased Amounts 

Under the Amended Act, a penalty may be imposed for any of the following environmental offenses: 

• Illegal discharge of certain substances known to be particularly hazardous to the environment (e.g., benzene) (the “Specified Hazardous Substances”);
• Illegal manipulation of measurement equipment while discharging any of the Specified Hazardous Substances;
• Illegal manipulation of document or data while discharging any toxic substances;
• Intentional discharge of pollutants at a facility without obtaining the necessary permit or registration; and
• Discharge or leakage of authorized substances (i.e., substances that need authorization), restricted substances or prohibited substances in violation of the hazardous substance handling standards.  

With respect to any of the above environmental offenses, the Ministry of Environment (the “MOE”) may impose penalties that consist of (i) “penalty for violation” of up to 5% of the offender’s average sales amount for the past three years and (ii) cost of remediation to restore the contaminated area to the original state (Article 12(1)-(2) of the Amended Act).  When there is no sales or when it is difficult to estimate the amount of the sales (for example, due to temporary shutdown, suspension of business, or loss of relevant information due to disasters), the offender is subject to a fixed sum of penalty not exceeding KRW 1 billion (approx. USD 900,000) (Article 12 (1) of the Amended Act; Article 3 (1) of the Amended Enforcement Decree).  Compared to the former law which imposed a penalty of up to “two to ten times of the profits generated by the illegal discharge” and the cost of remediation, the Amended Act significantly increases the potential penalty amount. 

2.   Standards on Imposition of Penalties 

The percentage to be used to calculate the applicable “penalty for violation” depends on the size of the offender’s sales (see table below; Annex 1, Paragraph 1 (A) of the Amended Enforcement Decree).  Further, the details on how the applicable percentage must be determined in consideration of seriousness and duration of the violation are set forth in the MOE’s notification (the “Notification”). 
 

For your reference, the five-year look-back period is longer than the typical duration (one or two years) that administrative dispositions often take into account when imposing an enhanced penalty against a repeated offense (i.e., the Amended Enforcement Decree applies a heightened standard for penalties than usual administrative dispositions).  

In addition, the Amended Enforcement Decree provides that the cost of remediation consists of costs of (i) removing illegally discharged pollutants and (ii) restoring any deformation of land, among others, that occurred in the course of such remediation process, and includes costs of investigation, design, construction and verification necessary for the remediation.  If the offender removes the pollutants and restores the environment to its original state, it will be exempt from the portion of the penalty that corresponds to the cost of remediation (Annex 1, Paragraph 2 of the Amended Enforcement Decree). 

3.   Adjustment of Penalty Based on Self-Reporting and Self-Correction

Under the Amended Act, penalties may be entirely exempted or reduced in part if the offender promptly reports its violation to the MOE and remedies the violation (Article 12 (6) of the Amended Act).  The factors that may reduce the penalty are provided in Article 3 (3) of the Amended Enforcement Decree (see below) with further details to be set forth by the MOE: 

(i) An offender that voluntarily reports its violation to the MOE and remedies the same, immediately upon becoming aware of the violation: up to 30% reduction 
(ii) An offender that satisfies (i) above and faithfully cooperates with the investigation by, among others, consistently acknowledging the violation throughout the investigation and submitting any relevant materials: up to 50% reduction 
(iii) An offender that satisfies (i) and (ii) above, and in addition is the first to report any joint violation with another party to the MOE and submits any relevant materials: up to 80% reduction 

These provisions effectively establish a so-called “leniency program for environmental offenses” that incentivizes companies to self-report and self-remedy their violations (e.g., illegal discharge of pollutants) that are generally difficult for external investigators or a third party to discover.  In this regard, we view that this amendment aims to encourage businesses that operate facilities discharging pollutants or handling hazardous substances to voluntarily conduct compliance reviews to ensure that they are in compliance with the applicable environmental laws. 

4.   MOE’s Notification 

Key aspects of the Notification, which became effective on December 4, 2020, are summarized as follows: 

• The sales that serve as a basis for calculation of the penalty is the net sales revenue (the total sales minus value-added tax, sales allowances/returns, and sales discounts).  Under certain circumstances, the sales may be estimated (Article 4). 

• When calculating the penalty for violation, the applicable percentage can vary depending on the offense at issue.  For repeated violations, the percentage will be significantly higher than the percentage for the first violation.  In addition, the applicable percentage can be increased depending on the duration of the violation(s) (Article 5). 

• The MOE will conduct inspections to see if any pollutants remain in the area and estimate the cost of remediation.  If there are more than one offender responsible for the cost of remediation, in principle, the cost of remediation will be allocated to each offender in proportion to their respective contribution to the contamination.  If each offender’s contribution is difficult to estimate, all offenders will be held jointly liable for the remediation (Article 6).  

• While the Notification provides detailed criteria on how penalties may be reduced for offenders who self-report to the MOE, it also provides that such reduction will not be available to any offender, among others, (i) who has submitted false materials to the authority or (ii) who has committed a violation subject to a penalty within the past five years (Article 7). 

• Taking other factors into account, the MOE may further reduce the penalty calculated under Articles 5 and 7 by up to 20% (Article 8). 

• A penalty review committee, consisting of no more than nine members with at least five non-public servant members, will be established within the MOE (Article 12).  

• A person who becomes subject to investigation may submit his or her opinion with respect to a pre-notice of the penalty (Article 9), but does not have a right to attend or participate in the deliberation of the committee on penalty review (Article 13). 

• The penalty may also be imposed on a surviving company or a newly formed company after a merger, or a company to be spun-off or a newly formed company after a spin-off (Article 14).