Q1. How have companies responded to the implementation of the Kim Young-ran Act?
Approximately one year has passed since the Prohibition of Improper Solicitation and Graft Act -- the “Kim Young-ran Act” -- was implemented, and the act appears to have succeeded in steadily regulating paternalism and nepotism in Korean society, as well as the corruption of public officials, with strong support from the public.
Meanwhile, companies appear to be acting conservatively in interpreting the Kim Young-ran Act due to abstract and vague provisions, and the lack of precedents. In a recent launch event for the iPhone X hosted by Apple, only Korean reporters were left out from the invitation list, and one analyst opined that this may have been caused by the Kim Young-ran Act’s implementation.
In response, the Anti-Corruption and Civil Rights Commission expressed its position that it is unlikely to be a violation of the Kim Young-ran Act if a foreign corporation invites Korean reporters to a product launching event and provides air fare, accommodation and food at the same level as those provided to reporters from other countries, in accordance with the “scope of money and goods that can be provided in official business-related events hosted by foreign corporations.”
However, numerous companies appear to be taking a conservative approach, as companies cannot be certain as to whether their invitations to such events and the host’s payment of expenses meet the exceptions under the Kim Young-ran Act -- i.e., money and goods such as transportation, accommodation and food that the host uniformly provides to participants to an ordinary extent.
Q2. Is there any particular reason why companies are responding sensitively to the Kim Young-ran Act?
One of many reasons why companies are responding sensitively and taking a cautious stance toward the Kim Young-ran Act could be concerns that a violation may greatly damage a company’s reputation, considering the public’s heightened attention toward the Kim Young-ran Act’s implementation.
Another major reason could be that, unlike penalties for bribery, the Kim Young-ran Act provides for a joint penal provision, meaning that both the company and the actual offender are subject to punishment. In an actual case in which a representative or an employee of a company provided meals and gifts to a public official in violation of the Kim Young-ran Act, the court not only punished the actual offender but also imposed a fine on the company by applying the joint penal provision.
Q3. What should companies do to avoid the joint penal provision?
Even if the joint penal provision applies, a company may avoid penalties “if the company was not negligent in exercising substantial duty of care and supervision over the relevant work in order to prevent the violation.”
The court ruled that whether a company has exercised sufficient duty of care and supervision should be determined through a comprehensive consideration of all circumstances concerning the relevant violation. For example: the legislative purpose of the act, the degree of legal interest expected to be harmed from a violation of the penal provision, the legislative purpose behind applying the joint penal provision against the prohibited activity, the size of the company’s business, the possibility of supervising the offender or the specifics of the supervisory relationship, measures actually taken by the company to prevent the violation, etc.
Accordingly, one effective way to avoid penalties through the joint penal provision would be for companies to operate an effective anti-corruption compliance program and take active measures -- for example: enforcing internal regulations, taking disciplinary actions against offending employees, etc. -- to prevent employees from violating the Kim Young-ran Act.
By Hong Kyoung-ho
Attorney and partner of law firm Yoon & Yang LLC