With the aim of bolstering ethical standards within the public sector, the Improper Solicitation and Graft Act, commonly referred to as the “Anti-Graft Act,” was enacted in September 2016. Today, more than six years have passed since its implementation, and we are witnessing the accumulation of a variety of legal precedents that reflect diverse real-world scenarios. 

The Anti-Corruption & Civil Rights Commission (the “ACRC”), the main governing body of the Anti-Graft Act, has released several case digests of the Anti-Graft Act over the years. In July of 2023, it published the “2023 Anti-Graft Act Case Digest,” featuring over 120 cases spotlighting various aspects of the Anti-Graft Act.

In the most recent case digest, there was the notable addition of 18 new cases in comparison to last year’s digest. These cases shed light on how the courts have deemed certain conducts to be in violation of the Anti-Graft Act as well as the range of fines imposed based on the severity of the violations, which could all serve as valuable references for the corporate compliance, legal, and auditing functions.

In the following sections, we take a look at the key details and potential implications of three noteworthy cases that have been newly added in the “2023 Anti-Graft Act Case Digest.”
 

Relevant Facts and Key Findings

• From 2018 to 2019, an employee of Korean Government Institution A was responsible for the management and construction contract of Facility B in Washington D.C. In August 2019, the above employee, along with his/her family, were treated to a meal worth approximately USD 100 by the representative of a local construction company in charge of constructing Facility B.

• The court determined that the employee had received a monetary gift in the form of a meal expense from the local construction company in connection with his/her duties in violation of the Anti-Graft Act, and as a result, imposed an administrative fine of KRW 300,000.
   

Implications

• This case shows how the Anti-Graft Act applies to Korean public officials engaging in activities beyond the borders of the Republic of Korea as the ACRC has previously iterated. In accordance with the “nationality principle” in criminal law, if a Korean public official receives improper solicitation or obtains goods/money from a foreigner outside the territory of the Republic of Korea, the Anti-Graft Act is nonetheless applicable to that official. 

• The decision shows how the ACRC’s stance related to the “nationality principle” is also consistently upheld in the courts as well. Despite the fact that the meal was provided abroad and the provider was a representative of a local US construction company, the enforcement of the Anti-Graft Act affirms the commitment to uphold ethical standards among Korean public officials, regardless of international settings.

• This decision holds relevance for foreign corporations as well, highlighting the fact that the jurisdiction of the Anti-Graft Act transcends territorial boundaries. It serves as a reminder that preventive measures, such as proactive education, pre-interaction guidance, and post-event assessments, should include conduct occurring outside of Korea and are indispensable when engaging with public officials in locations beyond the Republic of Korea’s borders.
   

Relevant Facts and Key Findings

• An employee of Government Institution C who has exclusive rights over horseracing, attended a golf tournament hosted by Association D, which was mainly comprised of racehorse owners. Association D covered the employee’s golf expenses (approximately KRW 172,500) as well as transportation costs (i.e., bus charter and transportation costs amounting to approximately KRW 46,150). The main issue in the case was whether the golf tournament would fall under the category of an “official event related to the duties of a public official,” thereby permitting the employee to accept the aforementioned benefits.

• In a subsequent court decision, citing the fact that the above employee is a public official and other participants of the tournament paid for their own golf expenses, the court held that the employee receiving those benefits violated the Anti-Graft Act and imposed an administrative fine of KRW 500,000.
   

Implications

• In its decision, the court stated “While the perspective of viewing a “golf event” primarily as a means of providing a meal or entertainment may not be entirely unreasonable, it cannot be unequivocally deemed as providing entertainment.” Interestingly, the court recognized that, in certain situations, a “golf tournament” could potentially qualify as an “official event,” citing that Government Institution C had publicly disclosed the attendees of the golf tournament and that the attendees would be provided with golf balls.

• Nevertheless, the court focused on the fact that members associated with Association D had covered their golf tournament costs through the provision of sponsorships, whereas the employee did not incur any separate expenses. Consequently, the court held that the golf tournament in question did not qualify as an “official event” as defined by the Anti-Graft Act. 

• It is worth noting that if Association D had provided support for the golf-related and other expenses uniformly to all of the attendees, the court may have reached a different conclusion. This case underscores the importance of the requirement for the “official event” exception that benefits have to be provided uniformly to all participants and not just the attending public official and therefore offers valuable insights to companies considering hosting events of a similar nature.
   

Relevant Facts and Key Findings

• Company Z was entrusted with the management of Facility E under the Korea Electric Power Corporation (“KEPCO”). Company Z’s employee F was the on-site manager (local representative) of Team G that was woking within the KEPCO. On January 11, 2019, employee F provided gift certificates to KEPCO employees H (KRW 300,000), I (KRW 200,000), and J (KRW 200,000), who were responsible for supervising the services provided by Company Z. The core issue raised pertained to Company Z’s liability for employee F’s actions under the scope of joint liability provisions.

• The gift certificates provided to employees H, I, and J were funded with money that Team G employees, including employee F, contributed on a monthly basis, ranging from KRW 5,000 to KRW 10,000 each. This fund was akin to mutual aid contributions, and Company Z was unaware of its existence. However, the court held that the mere fact that Company Z was unaware of such circumstances or asserting that the company had diligently supervised its employees’ cost expenditures was insufficient to exempt Company Z from liability under the joint liability provisions. Consequently, Company Z was administratively fined KRW 1,400,000.
   

Implications

• Company Z contended that it was unaware of its employees’ voluntary contributions for the above funds, which were mainly to be used for funeral/wedding-related expenses. Furthermore, Company Z asserted that it had rigorously supervised and restricted cash usage, strictly mandating the use of corporate debit cards for business purposes and bank wire transfers for expenses.

• Nevertheless, the court held that such circumstances alone did not constitute sufficient grounds to “conclude that employee F’s misconduct fell outside the scope of Company Z’s management and supervision, or that Company Z exercised substantial care and supervision to prevent the violation.” This highlights the stringent stance the court has taken with regard to exemption of corporate liability under the joint liability provisions (Article 24) of the Anti-Graft Act. 

• From the perspective of the company, this raises questions as to the extent of managerial responsibility required to claim exemption from potential liability under the joint liability provisions. The decision should not be interpreted to mean that, “Even if the company undertook thorough supervision and management of company disbursements, this will not be taken as a positive factor in the consideration.” 

• Instead, this case tells us, while thorough management and supervision over disbursements are positive factors, they do not automatically exempt companies from liability when there has been a failure to manage and supervise actions directly related to violations, such as the offering of gift certificates. In other words, in addition to undertaking comprehensive management and supervision related to expenses, a company has the obligation to identify high-risk situations where violations of the Anti-Graft Act could occur (in this case, managing the purchase and use of gift certificates), and if it fails to establish an appropriate control system to address such situation, there is a possibility that the company may incur responsibility for violating the Anti-Graft Act.

• The trend evident in the above cases is consistent with the recent decisions concerning a director’s duty of oversight, which demand “heightened supervision for tasks associated with anticipated legal risks.” Now, more than ever, it is imperative for companies to recognize and address core risks they face and to implement appropriate measures such as establishing and operating a robust compliance management system. For effective risk mitigation, conducting an objective and thorough analysis, taking into consideration the characteristics of the company’s industry and business practices, is particularly critical in identifying which functional departments/sectors and operational scenarios pose risks.

[Korean Version]