North Korea: The New Anti-Corruption Act Of Korea And The U.S. Foreign Corrupt Practices Act (FCPA)

Last Updated: 28 February 2017
Article by Wonil Kim and Jun Sang Lee

Key Aspects of the New Anti-Corruption Act

On September 28, 2016, the "Act on the Prohibition of Improper Solicitations and the Receipt or Offer of Money or Things of Value" (abbreviated as the "Improper Solicitation and Graft Act") first came into effect. The act, which is more commonly known as the "Kim Young-Ran Act," prohibits improper solicitations of public officials and bans any offer to, or acceptance by, public officials of anything of value.

The Improper Solicitation and Graft Act applies anti-corruption measures more broadly compared to the existing anti-corruption laws and policies by prohibiting improper solicitations even without any offer or acceptance of money, etc. or even if such solicitations fail, and by prohibiting offer or acceptance of money, etc. even without any quid pro quo. The term "money, etc." is also broadly defined to include cash or cash equivalents, meals, drinks, gifts, entertainment, golf outings, promise of employment, exemption of debts, or any other financial advantages. The act also expands the definition of "public officials" to include not only civil servants but also individuals in certain private sectors such as journalists and teachers of private schools.

Under the Improper Solicitation and Graft Act, it is prohibited to give a public official money, etc. of any amount in connection with the duties of such public official. Furthermore, even in the cases where there is no relationship to the duties of the relevant public official, nobody is allowed to give money, etc. exceeding KRW 1 million on any one occasion or KRW 3 million in a fiscal year in aggregate. The act provides very limited exceptions, including offer or acceptance of meals up to KRW 30,000 (i.e., approximately USD 30), gifts up to KRW 50,000 (i.e., approximately USD 50), or money gifts for weddings or funerals up to KRW 100,000 (i.e., approximately USD 100), when given in the context of traditional social norms or customs.

The Improper Solicitation and Graft Act contains an explicit provision on corporate vicarious liability. If a representative, agent or employee of a corporation violates the act in connection with the corporation's business, the corporation may become subject to the same fines as applied to the individual violator. The corporation may raise an affirmative defense if it can establish that it has not neglected reasonable care or supervision to prevent violations of the act by its employees.

Implications of the Improper Solicitation and Graft Act on the FCPA Investigations

The enforcement of the Improper Solicitation and Graft Act may have implications on the U.S. investigation and prosecution under the U.S. Foreign Corrupt Practices Act (FCPA). Since the instances of improper solicitation and bribery offenses punished under Korean law will increase significantly, more corporate conducts that have not been regulated in the past will come to the attention of the FCPA enforcement authorities.

In addition, the implementation of the Improper Solicitation and Graft Act may result in a lower possibility of success in raising affirmative defenses under the FCPA. Because the exceptions allowed under the Improper Solicitation and Graft Act are so narrow and limited, establishing the local law defense under the FCPA (i.e., that the payment at issue was lawful under the written laws of the foreign country) would not likely be successful.

The implementation of the Improper Solicitation and Graft Act will very likely expose the corporations to unprecedented regulatory compliance risks that may entail substantial reputational damages and financial losses to the corporations. Therefore, it is critical for the corporations subject to both the Improper Solicitation and Graft Act and the FCPA to carefully examine and, if necessary, overhaul and reinforce in advance their current regulatory affairs system and their internal anti-corruption compliance policies and frameworks.

See our previous newsletters on the Improper Solicitation and Graft Act and the FCPA:

  1. Persons and Entities Covered by the FCPA and the Applicability of the FCPA to Korean Companies
  2. "Foreign Officials" and "Corrupt Payment" under the FCPA
  3. Successor Liability in M&A Transactions Related to FCPA Violations
  4. Implementation of Kim Young-Ran Act: What is to be done for Corporations?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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