South Korea

South Korea Corruption Report

Snapshot

South_Korea_250x163.pngCorruption may present an obstacle for businesses in South Korea, but the government is actively taking steps to remedy issues. The Criminal Code criminalises the main forms of corruption, and the Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption & Civil Rights Commission includes a Code of Conduct for public-sector employees and regulates conflicts of interest and asset disclosure. TheImproper Solicitation and Graft Act (2015) eliminates a requrement to provide direct evidence between a monetary reward and a favour to secure a corruption conviction and holds companies liable for corrupt misconduct of their employees. Anti-corruption legislation is increasingly enforced in South Korea. Facilitation payments are prohibited, but they are permitted, under certain conditions, with respect to foreign officials. There is no minimum threshold for gifts. South Korea is under pressure to prove a will to fight corruption among its top politicians after a corruption scandal came to light involving a former prime minister and top business leaders in April 2015 (FT, Apr. 2015). The primary corruption-related issue concerns reported collusion between government officials and business, with officials being lenient to regulate business due to the prospect of eventual private-sector employment for public officials (Diplomat, May 2014). 

Last updated: July 2015
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Judicial System

Korea's judiciary is highly professional but not entirely free from governmental pressure (BTI 2014). The judiciary provides a check and balance against executive and legislative activities, but state prosecutors are occasionally ordered to launch investigations (especially into tax matters) to intimidate political opponents or other actors (BTI 2014). Even though commercial disputes can be adjudicated in a civil court, foreign companies often feel this is not a practical means to resolve disputes (ICS 2014). Businesses do not consider the Korean judiciary to be entirely independent (GCR 2014-2015), and nearly half of Koreans perceive the judiciary as corrupt (GCB 2013).

Police

Businesses are unlikely to encounter corruption when dealing with police in South Korea, for effective mechanisms are in place to investigate and punish police corruption (HRR 2013). Nevertheless, companies believe the police perform inadequately in terms of reliably protecting businesses from crime (GCR 2014-2015).

Public Services

Businesses are not likely to encounter corruption in South Korea's public services sector. However, the Korean regulatory environment poses a significant challenge for foreign and domestic investors, and laws and regulations are often framed in general terms and are subject to differing interpretations by government officials (ICS 2014). Businesses rate inefficient government bureaucracy as one of the most problematic factors to doing business, and government administrative requirements in South Korea are considered very burdensome (GCR 2014-2015).

In April 2015, the prime minister of South Korea, Lee Wan-Koo, resigned after being named in connection with a large-scale corruption scandal in which a construction company head allegedly paid bribes to a number of high-ranking government officials (ABC News, Apr. 2015). In another case, one hundred people, including a former state utility official, were charged for corruption in a case involving fake safety certifications for nuclear reactors; the opaque nuclear industry in South Korea has resulted in a culture of secrecy and has led to corrupt practices among officials involved in safety certifications (Reuters, Oct. 2013).

Land Administration

Corruption is rare within South Korea's land administration. Private property rights are generally well protected, and there is very little chance of expropriation taking place; however, legal proceedings concerning contractual issues can be time-consuming (BTI 2014). Foreigners are permitted to acquire land in Korea under the Foreigner’s Land Acquisition Act, but reciprocity between Korea and the foreign national's country is a precondition for foreign real estate purchases. Expropriations of private property can only take place when it is non-discriminatory, with prompt and adequate compensation and for public purposes (ICS 2014).

Tax Administration

Corruption is not likely when interacting with Korean tax authorities; however, given the complexity of Korean tax laws and the potential for misunderstanding provisions, foreign companies should consider hiring a local accounting company to file taxes (CCG 2014). Tax evasion is extensive in South Korea (Bloomberg, May 2013). In addition, investigations into tax matters are sometimes launched by high-ranking political figures to intimidate political opponents or other actors not toeing the line (BTI 2014). Family-controlled conglomerates, chaebols, dominate the economic sphere and receive lenient penalties for financial crimes such as tax evasion (Independent, Feb. 2013), leading to an unfair market.

Customs Administration

Border corruption is not a problematic factor for importing goods into South Korea (GETR 2014), and the country ranks among the best in the world in terms of trading across borders (DB 2015).

Public Procurement

South Korea's procurement sector carries a risk of corruption. Companies state both that public funds are sometimes diverted to companies, individuals or groups due to corruption, and that favouritism and bribery may occur when deciding policies and contracts in South Korea (GCR 2014-2015). Extensive corruption was revealed in Korea's arms procurement in late-2014, with the country's president, Park Guen-hye, promising to root-out the problem (Korea Times, Oct. 2014).

Public procurement regulations and announced tenders can be found at the Korean Government Procurement (PPS) website. Korea operates the Government e-Procurement System (GePS, in Korean), a one-stop shop for public procurement.

Legislation

The Criminal Code criminalises the major forms of corruption in South Korea, including active  and passive bribery, attempted corruption, extortion, bribing a foreign official, money laundering and abuse of office. Anti-corruption legislation is increasingly enforced (FitW 2015). Korea's Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption & Civil Rights Commission includes a Code of Conduct for government officials, regulates conflicts of interest and requires high-ranking officials to disclose their assets and to report gifts received from foreign entities. The Act introduces severe sanctions for public officials for domestic bribery and receiving kickbacks, including imprisonment for up to three years and a fine of up to KRW 30 million or five times the amount received. The Improper Solicitation and Graft Act eliminates the need to prove a direct link between a provided gift/monetary reward and a favour to secure a conviction of a public official. The Act broadens the definition of a public official to include teachers in private schools and employees of newspaper and broadcasting companies. Notably, under the Act, companies and employers can be held liable for the corrupt actions of their employees. Other relevant legislation includes the Act on Preventing Bribery of Foreign Public Officials in International Business Transactions (which covers foreign bribery), the Financial Transaction Reports Act, the Proceeds of Crime Act, the Government Procurement Act and the Act on the Disclosure of Information by Public Agencies. The Act on the Protection of Public Interest Whistleblowers is designed to protect whistleblowers in the public and private sectors and extends to reports on foreign bribery; it was amended in 2015 to increase whistleblower protections in part as a response to the Sewol Ferry accident (ACRC, July 2015). The Criminal Code forbids facilitation payments domestically, but facilitation payments to foreign public officials are permitted under South Korean law (NRF, Sept. 2014). There is no minimum threshold for gifts under South Korean law (NRF, Sept. 2014). Access the Ministry of Government Legislation for a collection of South Korean laws in English.

Civil Society

Korea's civil society is among the most active in the Asia-Pacific region; civil society organisations (CSOs) have taken an active oversight role in monitoring and assessing the activities of the government and companies (BTI 2014). Civil society works actively with the Anti-Corruption and Civil Rights Commission (HRR 2013). However, CSOs report difficulties in receiving funding if they do not align with conservative values promoted by the ruling party (BTI 2014). In addition, security authorities' surveillance of non-governmental political and social organisations is reportedly increasing (HRP 2013). South Koreans trust the integrity of non-governmental organisations (GCB 2013).

Freedoms of speech and press are constitutionally guaranteed in Korea, but the media environment is considered 'partly free' and is deteriorating due to increasing government influence in state-owned media (FotP 2014). Nevertheless, independent media outlets generally operate without restrictions (HRR 2013), and newspapers are privately owned and report regularly on governmental policies and alleged official and corporate wrongdoings. The National Security Law (NSL) stipulates imprisonment for praising or expressing sympathy with North Korea, leading to a degree of self-censorship on the part of the media (FotP 2014).

Sources

  • World Bank Group: Doing Business 2015.
  • South Korea's Anti-Corruption & Civil Rights Commission: 'Revised Act on the Protection of Public Interest Whistleblowers passed the National Assembly', 6 July 2015.
  • Financial Times: 'South Korea PM offers to resign amid 'war on corruption', 21 April 2015.
  • World Economic Forum: Global Competitiveness Report 2014-2015
  • ABC News: 'South Korea prime minister Lee Wan-Koo resigns over widening bribery scandal', 27 April 2015.
  • US Department of State: Investment Climate Statement 2014
  • World Economic Forum: Global Enabling Trade Report 2014.
  • Freedom House: Freedom of the Press 2014.
  • Norton Rose Fulbright: South Korea 2014.
  • Bertelsmann Foundation: Transformation Index 2014.
  • Korea Times: 'Park slams corruption in arms procurement', 28 October 2014.
  • The Diplomat: 'Ferry Tragedy: A Righteous and Overdue Rage Over Corruption', 28 May 2014.
  • US Department of State: Human Rights Report 2013.
  • Transparency International: Global Corruption Barometer 2013.
  • Reporters Without Borders: Press Freedom Index 2013.
  • Reuters: 'South Korea charges 100 with corruption over nuclear scandal', 10 October 2013.
  • Bloomberg: 'Korea Will Probe Chaebol Executives Named in Tax-Evasion Reports', 30 May 2013.
  • Independent: 'Tax evasion, bribery and price-fixing: How Samsung became the giant that ate Korea', 25 February 2013.
Topics: East Asia & The Pacific