Korea, Republic of

Executive Summary

The Republic of Korea (ROK) has made tremendous economic gains during the past six decades, transforming from a recipient of foreign assistance to a high-technology manufacturing powerhouse and middle-income donor country. The country experienced real GDP growth of 2.7 percent in 2016, up from 2.6 percent growth in 2015, yet short of the government’s target of 3.1 percent announced in December 2015. Economic growth in 2016 was mainly backed by increased consumer demand and construction investment, in addition to a foreign consumption hike following a fall in the exchange rate. The economy’s growth was constrained in the second half of 2016, however, by uncertainties caused by external and internal factors, including Brexit, the United States election campaign, and a political scandal that led to the impeachment of President Park Geun-hye, causing a contraction of consumption and investment. Exports fell 5.9 percent from 2015 due to slow global growth and reduced demand from the ROK’s top trading partner, China. Growth is expected to remain moderate in coming years due to the ROK’s relatively developed economy, an aging population, and inflexible labor market. Economic growth potential for 2015-2018 is between 3.0 percent and 3.2 percent, according to the Bank of Korea (BOK), although many private-sector assessments are lower. The Constitutional Court on March 10 upheld an impeachment motion against President Park, resulting in her removal from office. A presidential election will be held on May 9, and Prime Minister Hwang Kyo-ahn is serving as acting President in the interim. The election is not expected to directly affect the ROK investment climate.

The U.S.-Korea Free Trade Agreement (KORUS FTA), which entered into force on March 15, 2012, was a major step forward in enhancing the legal framework for U.S. investors in the ROK. All forms of investment are protected under the KORUS FTA, including equity, debt, concessions, and similar contracts, as well as provision of intellectual property rights. With very few exceptions, U.S. investors are treated the same as South Korean investors (or investors of any other country) in the establishment, acquisition, and operation of investments in the ROK. In addition, the equal treatment of domestic and foreign investors is backed by a transparent international arbitration mechanism, under which investors may, at their own initiative, bring claims against the government for an alleged investment breach. Submissions to investor-state arbitration tribunals, as well as their hearings, are to be made public. The U.S. government continues to work closely with the ROK government to ensure full implementation of the KORUS FTA.

Improvement in the consistency of the ROK government’s interpretation, transparency, and timeliness in applying foreign direct investment (FDI) regulations would enhance the ROK’s investment climate. Unclear and opaque regulatory decision-making remained a significant concern, including informal “window guidance.” Sector-specific improvements in regulatory transparency have been made, however. For example, financial sector reforms enacted January 2016 require regulators to provide all guidance in written form, and companies cannot be punished for not following oral guidelines.

The ROK boasts a hard-working, educated workforce and high levels of institutional labor protections. However, foreign investors cited volatility in labor-management relations and increasing labor costs as issues that can hamper FDI. The Park Administration unsuccessfully advocated for reforms to enhance labor market flexibility, while improving the benefits provided to part-time and contract workers.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 53 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report “Ease of Doing Business” 2016 5 of 190 doingbusiness.org/rankings
Global Innovation Index 2016 11 of 128 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country (in USD, stock positions) 2015 $34.6 billion http://www.bea.gov/
international/factsheet/
World Bank GNI per capita 2015 $27,450 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

The ROK government’s attitude toward FDI is positive, and senior policymakers realize the value of foreign investment. Following the 2008-09 global financial crisis, inbound FDI continued to trend upwards from USD 5.4 billion in 2010 to USD 16.5 billion in 2015, falling to USD 9.76 billion in 2016 due to a sharp decline in global mergers and acquisitions. Foreign investment in the ROK is still at times hindered by insufficient regulatory transparency, including inconsistent and sudden changes in interpretation of regulations, as well as underdeveloped corporate governance, high labor costs, an inflexible labor system, and market domination by large conglomerates, or chaebol.

The Foreign Investment Promotion Act (FIPA) is the basic law pertaining to foreign investment in the ROK. FIPA and related regulations categorize business activities as open, conditionally or partly restricted, or closed to foreign investment.

FIPA features include:

  • Simplified procedures, including those for FDI notification and registration;
  • Expanded tax incentives for high-technology investments;
  • Reduced rental fees and lengthened lease durations for government land (including local government land);
  • Increased central government support for local FDI incentives;
  • Establishment of “Invest KOREA,” a one-stop investment promotion center within the Korea Trade-Investment Promotion Agency (KOTRA) to assist foreign investors; and
  • Establishment of a Foreign Investment Ombudsman to assist foreign investors.

The ROK National Assembly website provides a list of laws pertaining to foreigners (including the FIPA) in English. The site can be accessed here: http://korea.assembly.go.kr/res/low_03_list.jsp?boardid=1000000037 

KOTRA actively facilitates foreign investment through its Invest KOREA office. For KOTRA to assist in the establishment of a domestically-incorporated foreign-invested company, the investment must surpass KRW 100 million (USD 85,000). KOTRA and the Ministry of Trade, Industry, and Energy organize a yearly Foreign Investment Week to attract investment to the ROK. In 2016, over 1,000 attendees, including foreign investors and local press, participated in the event.

The ROK prioritizes investment retention, in part through a Foreign Investment Ombudsman. The position is commissioned by the President and heads a grievance resolution body that collects and analyzes information concerning problems foreign firms experience, requests cooperation from and recommends implementation of reforms to relevant administrative agencies, proposes new policies to improve the foreign investment promotion system, and carries out other necessary tasks to assist investor companies. More information on the Ombudsman can be found here: http://ombudsman.kotra.or.kr/eng/index.do .

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreign and domestic private entities can establish and own business enterprises and engage in all forms of remunerative activity. Restrictions on foreign ownership remain for 30 industrial sectors, three of which are entirely closed to foreign investment. The ROK government occasionally reviews the list of restricted sectors for possible changes. According to the Ministry of Trade, Industry, and Energy (MOTIE), the number of industrial sectors open to foreign investors is well above the Organization for Economic Cooperation and Development (OECD) average. The KORUS FTA provides for U.S. companies to be treated as non-foreign entities in selected sectors, including broadcasting and telecommunications. Relevant ministries must approve investments in conditionally or partly restricted sectors. Most applications are processed within five days; cases that require consultation with more than one ministry can take 25 days or longer. The ROK’s procurement processes comply with the WTO Government Procurement Agreement, but some implementation problems remain.

The following is a list of restricted sectors for foreign investment. Figures in parentheses generally denote the Korean Industrial Classification Code, while those for the air transport industries are based on the Civil Aeronautics Laws:

Completely Closed

  • Nuclear power generation (35111)
  • Radio broadcasting (60100)
  • Television broadcasting (60210)

Restricted Sectors (partly open, no more than 25 percent foreign equity)

  • News agency activities (63910)

Restricted Sectors (partly open, no more than 30 percent foreign equity)

  • Hydroelectric power generation (35112)
  • Thermal power generation (35113)
  • Other power generation (35119)

Restricted Sectors (partly open, less than 30 percent foreign equity)

  • Publishing of daily newspapers (58121) (Note: Other newspapers with the same industry code 58121 are partly open, less than 50 percent foreign equity)

Restricted Sectors (partly open, no more than 49 percent foreign equity)

  • Satellite and other broadcasting (60229)
  • Program distribution (60221)
  • Cable networks (60222)
  • Wired telephone and other telecommunications (61210)
  • Mobile telephone and other telecommunications (61220)
  • Satellite telephone and other telecommunications (61230)
  • Other telecommunications (61299)

Restricted Sectors (partly open, no more than 50 percent foreign equity)

  • Farming of beef cattle (01212)
  • Inshore and coastal fishing (03112)
  • Transmission/distribution of electricity (35120)
  • Wholesale of meat (46312)
  • Coastal water passenger transport (50121)
  • Coastal water freight transport (50122)
  • Publishing of magazines and periodicals (58122)
  • International air transport (51)
  • Domestic air transport (51)
  • Small air transport (51)

Open but Regulated under the Relevant Laws

  • Growing of cereal crops and other food crops, except rice and barley (01110)
  • Domestic commercial banking, except special banking area (64121)
  • Radioactive waste collection, transportation, and disposal, except radioactive waste management (38240)
  • Other inorganic chemistry production, except fuel for nuclear power generation (20129)
  • Other nonferrous metals refining, smelting, and alloying (24219)

The National Assembly approved an amendment bill to the Foreign Legal Consultant Act (FLCA) on February 4, 2016, that allows foreign law firms to establish joint ventures in the ROK. This revision was made to implement the ROK’s free trade agreement (FTA) market opening commitments with the United States, Australia, and the European Union (EU). The FLCA provides a framework for establishing joint ventures; however, it includes provisions that could restrict the ability of foreign firms to establish joint ventures, such as limiting the foreign party ownership of a joint venture to 49 percent. On December 29, 2016, the National Assembly approved an amendment to the Aviation Business Act to lift foreign investment barriers for air transportation support businesses beginning on March 30, 2017.

The ROK government may review foreign investments that affect national security. The government may restrict investments that disrupt production of military products or equipment, or if the company receiving foreign investment exports items that may later be used for military purposes differing from their originally intended use. The ROK government may also restrict foreign investment in cases where contracts classified as “state secrets” may be disclosed or the investment considerably impedes international efforts to achieve world peace or assure security. Foreigners linked to a country or an organization that may pose a threat to national security will also be subject to limitations on investments in South Korean firms. Related government agencies must ask MOTIE to review the case within 30 days of a foreign investor filing an application for regulatory approval, and MOTIE must make a decision within the following 90 days. If the investment fails the review, the foreign investor must transfer ownership to a South Korean national or corporation within six months of the close of the corporate fiscal year.

Other Investment Policy Reviews

The ROK government has not undergone investment policy reviews or received policy recommendations from multilateral organizations, including the OECD, World Trade Organization (WTO), or United Nations Conference on Trade and Development (UNCTAD), in the past three years.

Business Facilitation

Registering a business in the ROK can be a complex process that varies according to the type of business being established and requires interaction with KOTRA, court registries, and tax offices. Foreign corporations can enter the market by establishing a local corporation, local branch, or liaison office. The establishment of local corporations by a foreign individual or corporation is regulated by FIPA and the Commercial Act; the latter recognizes five types of companies, of which stock companies with multiple shareholders are the most common. To establish a stock company, 24 required documents are submitted to a court registry office, and an additional nine to a tax office.

There is no single website with which to complete this process. For small- and medium-sized enterprises (SMEs) and micro-enterprises, the online business registration process takes approximately three to four days and is completed through Korean language websites. Registrations can be completed via the Smart Biz website (https://www.startbiz.go.kr ). The website received an assessment of 2.5/10 in the UN’s Global Enterprise Registration listing, indicating improvements could be made to provide clear and complete instructions for registering a limited liability company.

Outward Investment

KOTRA has an Outbound Investment Support Office that provides counseling to ROK firms. There are some support measures for SMEs, and the government allotted KRW 5.4 billion (USD 4.6 million) in its 2017 budget for that support. The ROK government does not have any restrictions on outward investment.

3. Legal Regime

Transparency of the Regulatory System

As a member of the WTO and a country that has concluded FTAs with 52 countries, the ROK is improving the transparency of its policies to ensure its laws are non-discriminatory. The foreign business community remains concerned with the rapid increase in the number of Korea-unique (i.e., found nowhere else in the world) rules and regulations, however. Approximately 80 percent of regulations are introduced and passed by the National Assembly without a regulatory impact assessment (RIA) due to a loophole that requires only regulations written by ministries to undergo RIAs. While these regulations may have well-intended social aims, such as consumer protection or the promotion of SMEs, they often have unintended consequences for the economy by creating new trade barriers.

Laws and regulations are often framed in general terms and are subject to differing interpretations by government officials, who rotate frequently. Regulatory authorities often issue oral or internal guidelines or other legally enforceable dictates that many firms find burdensome and often difficult to follow. The former ROK government’s deregulation plan sought to eliminate the use of oral guidelines or subject them to the same level of regulatory review as written regulations. On March 17, 2016, the Prime Minister’s Office re-emphasized the need for government officials to enforce regulations more transparently and proactively, and said that those failing to hold regulatory reviews would be held strictly accountable. The KORUS FTA also includes provisions designed to address such issues.

The ROK constitution allows both the National Assembly and the executive branch to introduce bills. The legal norm is for regulations to be introduced in the form of an act. There are subordinate statutes (presidential decree, ministerial decree, and administrative rules) for matters that are delegated by acts and matters needed to enforce acts. Ministries are in charge of drafting such subordinate regulations. Acts and their subordinate regulations can all be relevant for foreign businesses. Administrative agencies shape policies and draft bills on matters under their respective jurisdictions. Drafting ministries are required to clearly set policy goals and complete RIAs. When a ministry drafts a regulation, it is required to consult with other relevant ministries before it releases the regulation for public comment. The constitution also allows local governments to exercise self-rule legislative power to draft ordinances and rules, but they should be within the scope of federal acts and subordinate statutes.

The enactment of acts and their subordinate statutes, ranging from the drafting of bills to their promulgation, must follow formal ROK legislative procedures. These procedures should be in accordance with the “Regulation on Legislative Process” enacted by the Ministry of Legislation. Since 2011, all publicly listed companies are required to follow International Financial Reporting Standards (IFRS, or K-IFRS in South Korea). The Korea Accounting Standards Board facilitates ROK government endorsement and adoption of IFRS and sets accounting standards for companies not subject to IFRS. According to the Administrative Procedures Act, proposed laws and regulations (acts, presidential decrees, or ministerial decrees) must seek public comments at least 40 days prior to their promulgation. Regulations are sometimes promulgated with only the minimum required comment period, and with minimal consultation with industry. Guidelines and regulatory changes originating from legislation proposed by members of the National Assembly are not subject to public comment periods. As a result, 80 percent of all new regulations are written and passed through the National Assembly without rigorous quality control and solicitation of public comments.

When notifications of proposed rules are made public, they appear online in the Official Gazette. The draft acts and regulations are also posted on the websites of relevant ministries and the National Assembly, with executive summaries. These postings, however, are only in Korean; thus, much of the 40-day comment period can be exhausted translating complex documentation. The Ministry of Legislation reviews whether laws and regulations are in conformity with the constitution and monitors whether the government adheres to the “Regulation on Legislative Process.” All laws and regulation also undergo review by the Regulatory Reform Committee for restrictive elements. The Regulatory Reform Committee aims to minimize government intervention in the economy and to abolish all economic regulations that fall short of international standards or hamper national competitiveness.

The Office of Regulatory Reform in July 2015 launched Sinmungo , an online portal through which companies can comment in English on existing legislation and regulations, as well as enter complaints about regulatory impediments to business. As a result, the Regulatory Reform Committee can take the initiative to address concerns of foreign firms doing business in the ROK by receiving and acting on complaints on a timelier basis.

Business regulation in the ROK often lacks empirical cost-benefit analysis or impact assessment on the basis of scientific and data-driven assessment because regulations are finalized without sufficient stakeholder consultation or passed by the National Assembly without a regulatory impact assessment. When ministries draft regulations, they must submit their RIA to the Regulatory Reform Committee for its determination on whether the regulation restricts rights or imposes excessive duties. These RIAs are usually not publicly available for comment, and public comments received by regulators are not made public.

The ROK government enforces regulations with penalties (either fines or criminal charges) in the case of violations of the law. The government’s enforcement actions can be challenged through an appeal process or administrative litigation.

International Regulatory Considerations

The ROK is not part of a regional economic bloc. The ROK is working to harmonize its standards with international standards, including those of the United States and the EU. It still, however, has many Korea-unique rules and regulations that make it more difficult for foreign companies to operate domestically. The ROK is a member of the WTO and notifies the Committee on Technical Barriers to Trade of all draft technical regulations.

Legal System and Judicial Independence

The ROK legal system is based on civil law. Subdivisions within the district and high courts govern commercial activities and bankruptcies and enforce property and contractual rights with monetary judgments, usually levied in the domestic currency. The ROK has a written commercial law, and matters regarding contracts are covered by the Civil Act. There are only three specialized courts in the ROK: the patent, family, and administrative courts. In civil cases, courts deal with disputes surrounding the rights of property or legal relations. The ROK court system is independent and not subject to government interference in cases that may affect foreign investors. Efforts are being made to ensure the judicial process is more fair and reliable. Foreign court judgments are not enforceable in the ROK. Rulings by district courts can be appealed to higher courts and the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Laws and regulations that have been completed within the past year:

  • Allow non-bank finance firms to operate foreign currency businesses;
  • Simplify and integrate ineffective and redundant laws and regulations relevant to foreign investment;
  • Allow joint law firms to be established between ROK firms and U.S. and EU firms;
  • Lower the limits for real-estate investment from KRW 700 million (USD 620,000) to KRW 500 million (USD 450,000);
  • Suspend changes made to the declaration form, when foreign firms establish branches in the ROK, for one year;
  • Establish more flexible standards to evaluate global education institutions when they establish branches in the ROK;
  • Introduce an omnibus account system, making it possible for foreign offshore institutional investors to handle orders from their clients in one account;
  • Reduce regulations for foreign firms when they do their initial public offering;
  • Reduce regulations that required eco-friendly certificates only from domestic agencies; and
  • Eliminate regulations that limited the ratio of foreign employees to 20 percent for small start-ups with foreign investors.

Pending laws and regulations:

  • Simplify procedures for foreign investors when they report their investment to the ROK government;
  • Address discrimination against foreign financial firms embedded in licensing requirements for financial investment businesses;
  • Relax the firewall system requirement inside financial companies;
  • Permit re-hypothecation of sovereign bonds to enhance the liquidity of assets; and
  • Expand entities exempt from an actual ownership check for financial transactions, including foreign branches of foreign financial companies.

There is no single website for investment-relevant laws and regulations. However, more information is available at the following websites: https://www.better.go.kr/ https://www.fsc.go.kr/ http://motie.go.kr /

Competition and Anti-Trust Laws

The Monopoly Regulation and Fair Trade Act authorizes the Korea Fair Trade Commission (KFTC) to review and regulate competition-related and consumer safety matters. KFTC has been active in investigating global information and communications technology (ICT) companies. A number of U.S. companies in the ICT sector have reported concerns about the KFTC, particularly regarding the agency’s practices with respect to procedural fairness and case selection and under Chapter 16 (Competition-Related Matters) of the KORUS FTA.

Expropriation and Compensation

The ROK follows generally accepted principles of international law with respect to expropriation. ROK law protects foreign-invested enterprise property from expropriation or requisition. If private property is expropriated, it can be taken only for a public purpose and only in a non-discriminatory manner, and claimants are afforded due process. Property owners are entitled to prompt compensation at fair market value. There are many cases of expropriation in the ROK, but mainly for public reasons like developing new cities, building new industrial complexes, or constructing roads. These are done in a non-discriminatory manner, and claimants are compensated at fair market value or above. U.S. Embassy Seoul is not aware of any cases alleging a lack of due process.

Dispute Settlement

ICSID Convention and New York Convention

The ROK has been a member of the International Center for Settlement of Investment Disputes (ICSID) since ratifying the convention in 1967. It has also acceded to the New York Convention. There are no specific domestic laws providing for enforcement. South Korean courts have made rulings based on the ROK government’s position acceding to the convention, however.

Investor-State Dispute Settlement

The ROK is a member of the International Commercial Arbitration Association and the World Bank’s Multilateral Investment Guarantee Agency. ROK courts may ultimately be called upon to enforce an arbitrated settlement. When drafting contracts, it may be useful to provide for arbitration by a neutral body such as the International Commercial Arbitration Association. U.S. companies should seek local expert legal counsel when drawing up any type of contract with a South Korean entity.

The United States has a bilateral Treaty of Friendship, Commerce, and Navigation with the ROK that contains general provisions pertaining to business relations and investment. The KORUS FTA contains strong, enforceable investment provisions that went into force in March 2012.

There have been few serious investment disputes involving foreigners in South Korea. In November 2012, U.S.-based Lone Star Funds, a worldwide private equity firm, brought an investor-state dispute arbitration against the South Korean government before ICSID, in Washington DC, under the investment chapter of the KORUS FTA, and this case is still pending. The private equity firm blamed the ROK government for sharp declines in stock prices, claiming that it delayed the acquisition of Korea Exchange Bank without cause. The ICSID is expected to make a ruling in 2017. Foreign court judgments, with the exception of foreign arbitral rulings that meet certain conditions, are not enforceable in the ROK. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Although commercial disputes can be adjudicated in a civil court, foreign businesses often feel that this is not a practical means to resolve disputes. Proceedings are conducted in Korean, often without adequate interpretation. ROK law prohibits foreign lawyers who have not passed the Korean Bar Examination from representing clients in South Korean courts. Civil procedures common in the United States, such as pretrial discovery, do not exist in the ROK. During litigation of a dispute, foreigners may be barred from leaving the country until a decision is reached. Legal proceedings are expensive and time-consuming, and lawsuits often are contemplated only as a last resort, signaling the end of a business relationship. ROK law governs commercial activities and bankruptcies, with the judiciary serving as the means to enforce property and contractual rights, usually through monetary judgments levied in the domestic currency. The ROK has specialized courts, including family courts and administrative courts, as well as courts specifically dealing with patents and other intellectual property rights issues.

Commercial disputes may also be taken to the Korean Commercial Arbitration Board (KCAB). The Korean Arbitration Act and its implementing rules outline the following steps in the arbitration process: 1) parties may request the KCAB to act as informal intermediary to a settlement; 2) if unsuccessful, either or both parties may request formal arbitration, in which case the KCAB appoints a mediator to conduct conciliatory talks for 30 days; and 3) if unsuccessful, an arbitration panel consisting of one to three arbitrators is assigned to decide the case. If one party is not resident in the ROK, either may request an arbitrator from a neutral country. If foreign arbitral awards or foreign courts’ rulings meet the requirements of Article 217 of the Civil Procedure Act, then those are enforceable by local courts. The U.S. Embassy is not aware of statistics involving state-owned enterprise investment dispute court rulings.

Bankruptcy Regulations

The Debtor Rehabilitation and Bankruptcy Act stipulates that bankruptcy is a court-managed liquidation procedure where both domestic and foreign entities are afforded equal treatment. The procedure commences after a filing by a debtor, creditor, or a group of creditors and determination by the court that a company is bankrupt. The court will designate a Custodial Committee to take an accounting of the debtor’s assets, claims, and contracts. Creditors may be granted voting rights in the creditors’ group, as identified by the Custodial Committee. Shareholders and contract holders may retain their rights and responsibilities based on shareholdings and contract terms. The World Bank ranked the ROK’s policies and mechanisms in place to solve insolvency fourth among 190 economies in its 2017 Doing Business report. Debtors may be subject to arrest once a bankruptcy petition has been filed, even if the debtor has not been declared bankrupt. Individuals found guilty of negligent or false bankruptcy are subject to criminal penalties.

8. Responsible Business Conduct

Awareness of the economic and social value of responsible business conduct and corporate social responsibility (CSR) is growing in the ROK, but is still in a nascent stage. The Korea Corporate Governance Service, founded in 2002 by entities including the Korea Exchange (formerly Korea Stock Exchange) and the Korea Listed Companies Association, encourages companies to voluntarily improve their corporate governance practices. Since 2011, its annual assessments have included reviews of corporate environmental responsibility and CSR, in addition to the issuance of associated guidelines. The United Nations Global Compact (UNGC) Network Korea, established in 2007, actively promotes corporate involvement in the United Nations (UN) Public Private Partnership for Sustainable Development Goals 2016-2030 and guides the values and direction of CSR to be not only about charity, but also about future corporate sustainability. UNGC is focused on human rights, anti-corruption, labor standards, and the environment, with 240 South Korean companies listed as UNGC members as of March 2017. Government-supported subsidies and tax reductions for social enterprises have contributed to an increase in the number of organizations tackling social issues related to unemployment, the environment, and low-income populations. Businesses also promote OECD Guidelines for Multinational Enterprises to enhance awareness of responsible business conduct.

For the promotion of OECD Guidelines for Multinational Enterprises, the ROK government operates websites and holds a wide range of seminars, in addition to publishing and distributing promotional materials. To enhance the implementation of the OECD Guidelines for Multinational Enterprises, the ROK government established a National Contact Point (NCP) in the then-Ministry of Foreign Affairs and Trade in 2000 (now two ministries, Ministry of Foreign Affairs and Ministry of Trade, Industry, and Energy) and designated the Korea Commercial Arbitration Board (KCAB) as the Secretariat of NCP. The International Human Rights Division of the Ministry of Justice oversees the National Action Plan to implement the guidelines. The KCAB recently addressed two cases related to the OECD Guidelines for Multinational Enterprises. It facilitated the discussion of the parties concerned and invited outside experts on arbitration to settle the issues, resulting in a favorable outcome.

The National Human Rights Commission, the Ministry of Employment and Labor (MOEL), the Korea Consumer Agency, and the Ministry of Environment enforce ROK law in the fields of human rights, labor, consumer protection, and environment, respectively, both effectively and fairly. Shareholders are protected by laws such as the Act on an External Audit of Corporations under the jurisdiction of the Financial Services Commission, the Act on Monopoly Regulation and Fair Trade under the jurisdiction of the KFTC, and the Commercial Act under the jurisdiction of the Ministry of Justice. The Commercial Act is currently under revision to better represent minority shareholders and enhance the value of shareholders. Other organizations involved in responsible business conduct include the ROK office of Trade Union Advisory Committee to the OECD, the Korea Human Rights Foundation, and the Korean House for International Society.

The Korea Sustainability Investing Forum (KOSIF) was established in 2007 and is dedicated to promoting and expanding socially responsible investment and CSR. Through regular fora, seminars, and publications, KOSIF provides educational opportunities, conducts research to establish a culture of socially responsible investment in the ROK, and supports relevant legislative processes. It actively engages with National Assembly members and stakeholders to influence decision-making processes.

The ROK does not maintain regulations to prevent conflict minerals from entering supply chains; however, the Ministry of Trade, Industry, and Energy supports companies’ voluntary adherence to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. ROK companies are often obligated to follow the conflict-free regulations of economies to which they export goods. The Korea International Trade Association and private-sector firms provide consulting services to companies seeking to comply with conflict-free regulations. The ROK is not a member of the Extractive Industries Transparency Initiative, but has a mining industry and has participated in the Kimberly Process since 2012. The ROK government is taking measures to guarantee transparency through the Mining Act, Overseas Resources Development Business Act, other relevant law on taxation, environment, labor, and anti-bribery, and OECD Guidelines for Multinational Enterprises.

9. Corruption

In an effort to combat corruption, the ROK has introduced systematic measures to prevent civil servants from inappropriately accumulating wealth and conducting opaque financial transactions. The Public Service Ethics Act, drafted in 1981 and entered into force in 1983, requires high-ranking officials to disclose their assets, including how they were accumulated, and report gifts they receive, thereby making their holdings public. The Act on Anti-Corruption and the Establishment and Operation of the Anti-Corruption and Civil Rights Commission (previously called the Anti-Corruption Act) concerns reporting of corruption allegations, protection of whistleblowers, institutional improvement, and training and public awareness to prevent corruption, as well as establishing national anti-corruption initiatives through the Anti-Corruption and Civil Rights Commission (ACRC). The ROK still faces challenges in effectively implementing anti-corruption laws, however. Transparency International’s Corruption Perception Index in 2015 ranked the ROK 52 out of 176 countries and gave it a score of 53 out of 100 (with 100 being very clean).

Corruption among government officials drew widespread attention throughout 2016. Choi Soon-sil, a longtime friend and close confidante of then-President Park Geun-hye, was arrested and indicted on charges of fraud, coercion, and abuse of power. She was accused of amassing a personal fortune by using her personal ties to Park, and the President’s knowledge of or involvement in Choi’s activities came under investigation. In light of the scandal, lawmakers voted 234-56 to impeach President Park in December 2016, and the Constitutional Court upheld this decision on March 10, 2017.

The ROK legislature passed a comprehensive anti-corruption law known as the Anti-Corruption and Conflicts of Interest Act, or the Kim Young-ran Act, in March 2015. The anti-corruption law came into effect on September 28, 2016, and institutes strict limits on the value of gifts that can be given to public officials, lawmakers, reporters, and private school teachers. It also extends to the spouses of officials. The Act on the Protection of Public Interest Whistleblowers is designed to protect whistleblowers in the private sector and equally extends to reports on foreign bribery, with a reporting center operated by the ACRC.

In 2014, to reduce collusion between government regulators and regulated industries that contributed to the tragic sinking of the Sewol ferry, the ROK government tightened regulations governing the employment of retired government officials. The sinking, which resulted in the deaths of 304 passengers (mostly children on a school trip) and crew in April of that year, resulted in widespread criticism of the ferry operator, the regulators who oversaw its operations, and the South Korean government for its poor disaster response and attempts to downplay government culpability. The government expanded the list of sectors restricted from employing former government officials during a mandated period after retirement, extended the mandated post-retirement period from two to three years, and increased scrutiny of retired officials seeking jobs in fields associated with their former official duties.

Most companies maintain an internal audit function to prevent and detect corruption. Government agencies responsible for combating government corruption include the Board of Audit and Inspection, which monitors government expenditures, and the Public Service Ethics Committee, which monitors civil servants’ financial disclosures and their financial activities. The ACRC focuses on preventing corruption by assessing the transparency of public institutions, protecting and rewarding whistleblowers, training public officials, raising public awareness, and improving policies and systems.

In reporting cases of corruption to government authorities, nongovernment organizations and civil society groups are protected by the Act on the Prevention of Corruption and the Establishment and Management of the Anti-Corruption and Civil Rights Commission, as well as the Protection of Public Interest Reporters Act. Individuals reporting cases of corruption to the ACRC must provide their full name to make the submission. However, their personally identifiable information is protected under the law, and the government cannot release information without the consent of the reporting individual. Violations of these legal protections can result in fines or prison sentences. U.S. firms have not identified corruption as an obstacle to FDI.

The ROK ratified the UN Convention against Corruption in 2008. It is also a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and a member of the Asia-Pacific Economic Cooperation Anti-Corruption and Transparency Working Group.

The Financial Intelligence Unit has cooperated fully with U.S. and UN efforts to shut down sources of terrorist financing. Transparency International has maintained a national chapter in South Korea since 1999.

Resources to Report Corruption

Government agency responsible for combating corruption:
Anti-Corruption and Civil Rights Commission
Government Complex-Sejong, 20, Doum 5-ro
Sejong-si, 339-012
Tel: +82-44-200-7151
Fax: +82-44-200-7916
Email: webmaster@acrc.go.kr
http://www.acrc.go.kr/en/index.do 

Contact at “watchdog” organization:
Anti-Corruption Network in Korea (aka Transparency International Korea)
#1006 Pierson Building, 89-27 Sinmunro 2-ga, Jongno-gu
Seoul, 100-761
Tel: +82-2-717-6211
Fax: +82-2-717-6210
Email: ti@ti.or.kr
http://ti.or.kr/xe/ 

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The Lessons of 1989: Freedom and Our Future