Today’s post is from Nathan McMurray (an attorney with Barun Law in Seoul, South Korea). In the post, McMurray discusses “Korea’s FCPA” and an important recent case in which the court held that the prosecution failed to meet its burden and prove beyond a reasonable doubt that China Eastern Airlines was a state owned enterprise, and, therefore, the president of the Korean subsidiary was a foreign public official. McMurray previously touched upon these issues on his Korea Law Today website (see here).
In 1999, the Republic of Korea (South Korea) enacted the Act on Preventing Bribery of Foreign Public Officials in International Business (FPBA) (see here for the English translation). It is Korea’s version of the Foreign Corrupt Practices Act (FCPA). But unlike the FCPA, not many people gave much attention to the FPBA, at least until recently.
As Korea has taken steps to increase transparency and stamp out corruption, Korean prosecutors have started pursuing those who have allegedly violated the FPBA. In particular, in May, the Incheon District Court (Incheon is an important port city close to Seoul) heard a case involving two men who were charged with violating the FBPA. This was the first trial ever under the FPBA, but it is not likely to be the last.
Because of the sudden interest in the FPBA and the passage of the U.S. – Korea Free Trade Agreement, it seems like this is the right time to take a closer look at the act and at this recent case. Focusing first on the text of the act, you may notice that its long name belies its brevity. The FBPA is only a short five articles long (two pages).
What’s in the FPBA.
Article 1 summarizes the purpose of the act, namely “the establishment of sound practice in international business transactions” and “criminalizing the act of bribery of foreign public officials.” In other words, the act prevents you from bribing foreign public officials to gain an improper business advantage.
Article 2 defines the term “foreign public official.” Specifically, a foreign public official is any person who:
- is engaged in a legislative, administrative, or judicial work for a foreign government (including local government);
- conducts official business on authority delegated by a foreign government;
- conducts the business of a public organization or agency established by a foreign government to engage in a specific business;
- is an executive or employee of an enterprise into which a foreign government has contributed more than 50% of the paid-in-capital or a foreign government exercises substantial control over the management (not including enterprises that operate on a competitive basis in the private economy without preferential treatment); or
- conducts the business of a public international organization.
Article 3 specifically defines the crime under the FBPA. It says that any person (meaning a natural person) may be liable for offering a bribe to a foreign official in relation to their official business to gain an improper advantage for the conduct of international business. The penalty for the crime may be up to 5 years’ imprisonment and a fine of up to 20 million Korean Won (KRW). If the profit obtained through the offense exceeds 10 million KRW, the penalty may be higher: up to five years’ imprisonment and a fine of up to twice the amount of profit.
There are a few exceptions in Article 3, which are similar to the FCPA exceptions. Payments that are lawful under the law of the foreign public official’s home country are permitted as well as facilitation or grease payments used to speed up the process of obtaining something from a foreign official that a person is already entitled to receive, such as (depending on the circumstances) getting a utility turned on.
Article 4 addresses the responsibility of the company (legal person) for which the person offering the bribe either works or represents. The company may be subject to a fine of up to 1 billion KRW. If the profit obtained through the offence exceeds 500 million KRW, the fine may be up to twice the amount of the profit. But there is another exception, if a company has “paid due attention or exercised proper supervision to prevent the offence” (i.e., reasonable care), it can escape liability.
Article 5 says that the authorities can confiscate any bribe amount still in the possession of the person who committed an offence. There is also a short addendum to the FBPA that says it came into force at the same time as Korea’s OECD obligations under the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which indicates when and how the FBPA was originally enacted.
What the Recent Case Teaches About the FPBA.
As referred to above, last year the Incheon Prosecutor’s Office charged two individuals with bribing a foreign public official under the FBPA. The president of the Korean subsidiary of China Eastern Airlines was offered the bribes. The two men charged were the president of a shipping company and the president of a travel agency. The shipping company president wanted more favorable rates, and the travel company president wanted China Eastern Airlines to assign it more tickets for sale.
A key issue in the case was whether the Korean president of China Eastern Airlines was a “foreign official” under Article 2 of the FBPA. The prosecution argued the government of the People’s Republic of China controls China Eastern Airlines. Apparently, the key evidence it offered for this claim was certain documents linking China Eastern Airlines to the Chinese government. The defense used employee testimony to challenge the truth, accuracy, and relevance of the documents.
The court held that the prosecution failed to meet its burden and prove beyond a reasonable doubt (or more precisely the Korean equivalent, which is the relevant standard in criminal trials in Korea) that China Eastern Airlines was a state owned enterprise, and, therefore, the president of the Korean subsidiary was a foreign public official. The court based its reasoning in part on the exception in Article 2 of the FBPA regarding enterprises that operate on a competitive basis in the private economy without preferential treatment.
The Ruling and Its Aftermath.
Because the prosecution was unable to prove that the president of China Eastern Airlines was a foreign public official, the two men were found not guilty under the FBPA. But unfortunately for all three men, they were found guilty of bribery under Article 357 of the Korean Criminal Code. The prosecutors, perhaps looking to establish a precedent, have appealed the court’s ruling on the FBPA charges.
This was a test case involving small companies and a prosecution team that seemed unprepared to prove a key element of the crime. But as we await the appeal and anticipate additional cases, what seems clear is that this once overlooked law is not going vanish into obscurity once again.
Many in the business community here are uncomfortable about where this may eventually lead. Korea is an exporting nation with limited natural resources. Major Korean companies (chaebols) have invested in nearly every corner of the world. You cannot help but wonder if Korean prosecutors are contemplating eventually applying the FPBA to these big fish, rather than smalltime operators looking for petty favors and extra tickets.
Also, it is unclear why in the China Eastern Airlines case the prosecution decided to focus on the individuals only and not the companies involved. Does their decision mean that the reasonable care exception for company liability applied, that the two companies were simply too small to focus on, or that the prosecution was concerned that the applying the FBPA to the companies would not withstand court scrutiny for some other reason? We can only speculate.
About Korean Court Precedents.
This post was produced with the help of my Korean colleagues, and the information about the court case summarized above was obtained from publically available sources. The case, however, was never officially published by the court, so we cannot verify all of the facts. Indeed, only Supreme Court cases are regular published in Korea. Lower court cases are sometimes published, but not always. This is in part because Korea is a civil law country. So although court precedent is an important source of law, it is still not treated the same way as it is in the U.S or other common law countries.
Still, court precedents are increasingly important to lawyers trying to understand the application of law. The courts have an internal record keeping system, and there are legal databases like West Law or Lexis Nexis in Korean. The website www.scourt.gov.kr is run by the Korean Supreme Court and is considered official. The site www.lawnb.com is a commercial reporter that provides more data than the official site. You can read more about this and many other issues in English on my blog at www.korealawtoday.com.