Korean Financial Supervisory Commission Annual Report in English

The Korean Financial Supervisory Commission has published it 2009 report to the President.

The report can be found at: http://www.fsc.go.kr/eng/

The Commission noted many needed steps to stregthen Korea's economy including:

1. Extending loans to SMEs


2. Supplying most loans in the first half of 2009


3. Allowing Conglomerate Privity Equity Funds to Purchase other companies


4. Allowing Conglomerates, that register as a holding companies, to own controlling interests in financial companies


5. Privatize the Korean Develpment Bank


6. Extension of maturity date of home loans for low and medium income workers with declining home values

The most significant issue to be recommended by the Commission is allowing holding companies to purchase controlling interests in financial institutions.

Spansion v. Samsung accepted by ITC

In an update to an article that I wrote for the Korea Times on 11/20/2008 the U.S. International Trade Commission (ITC) has accepted a patent infringement case against Samsung. Spansion claims the alleged infriging technology accounted for over U.S. $30 billion worth of profits for Samsung.

This is one of the largest patent infringement cases in U.S. history. If the past is any sign of the future, Samsung will settle this case prior to the finding by the ITC.

Liberalizations Taking Root in Korea

By Sean Hayes (Korea Times 12/18/2008)

The mobile phone market has been opened to foreign competition by the President Lee administration.

The government's reforms are finally being realized and consumers should herald this reform and welcome additional reforms proposed by the administration and the Regulatory Reform Committee in order to take Korea out of the darkness of its protectionist past and into the light of free trade and liberalism.

On Dec. 10, the Korean Communications Commission dropped the Wireless Internet Platform for Interoperability (WIPI) barrier to entry to the Korean handset market. Hopefully, the numerous other barriers to entry will be lifted in order to encourage investment, competition, innovation, and lower the burdens, while raising the benefits for consumers.

In 2005, with the Blackberry introduction into Korea looming on the horizon, the regulatory body, under pressure from Samsung and LG, passed a rule that mandated that all cell phones which connect to the Internet operate using the home-grown WIPI software.

Samsung and LG dominated the local handset market and of course welcomed the regulation.The commission, on the surface, mandated the standard for efficiency reasons, but few considered the ruling anything more than a barrier to entry created to protect the local phone makers.

The measure successfully produced a situation where most phone carriers were reluctant to break the barrier because of the prohibitive costs associated with developing phones equipped with this software.

Most of the handset makers were unwilling to use this software as Korea was the only nation utilizing it, and the market was not big enough to justify the expenditure.

In 2005, Research In Motion's Blackberry was denied permission to sell in Korea since the device lacked the WIPI software. RIM, a Canadian company, petitioned the Korean government vigorously through the Canadian Embassy in Korea, but to no avail.President Lee should be praised for opening the handset market to competition against the interest of two of Korea's biggest conglomerates.

It is doubtful that Samsung and LG will maintain their near absolute dominance of the local handset market.President Lee must have realized that the lack of competition, in the Korean market, led to some of the world's highest prices for phones, a noticeable dearth of smartphones, many phones being ``tested'' on the Korean consumer prior to shipment to Europe and the Americas, and numerous foreign businesses that castigated and maybe even avoided investment in Korea, because of the nation's perceived anti-foreign capital sentiment.

The scrapping of this regulation will likely lead to more competition in the mobile phone market, which will ultimately lead to higher quality phones, more handset options, and lower prices.My law firm is representing one of the large foreign phone manufacturers.

The company has a large manufacturing plant in Korea, but has not sold units domestically, since the regulation. Hopefully, they will enter the market with one of their great smartphones.

Likely, the introduction of this competition will lead to Samsung and LG upping the game and producing a more diverse and innovative range of even higher quality phones.We are also likely to see many progressive regulatory initiatives by the Regulatory Reform Committee.

The committee is headed by Choi Byung-sun, one of Korea's greatest minds and the dean of the Graduate School of Public Administration at Seoul National University.I had the pleasure to teach for his graduate school and we all had the pleasure of the work of a scholar dedicated to lasting change.

On the committee's Web site (www.rrc.go.kr) Dean Choi notes that: ``The Regulatory Reform Committee (RRC) is committed to transforming such malicious regulation into quality regulation and to finding alternatives other than direct regulation.''``The RRC will ensure that regulation does not stand in the way of market competition.

We will not let the privileged take advantage of regulations as a way to benefit from the sacrifice of the underprivileged or to protect their vested interests,'' he continued.

Sean Hayes is a New York attorney working with the Seoul office of LOGOS Law LLC, one of Korea's largest international law firms with offices in Beijing, Hanoi, Ho Chi Minh City, Incheon, Moscow, Phnom Penh, Seoul, and Songdo. He formerly worked as a law faculty member and for the Constitutional Court of Korea. He can be reached at SeanHayes@LawLogos.com

ASEAN Charter Online

The ASEAN Charter can be found online at: http://www.aseansec.org/ASEAN-Charter.pdf

The charter has been ratified by all 10 ASEAN member states (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam).

The ASEAN Charter is an interesting step for Southeast Asia. It is interesitng to note that the decision making functions will be decided only through consensus. If consensus is not reached the decision may be made at the ASEAN Summit. The Summit is to be held twice per year and will include the heads of the 10 ASEAN member states.

The ASEAN Charter, facially, is intended to be a step to the creation on a single market by 2015.

I will be writing a law review article on this charter. The article will be published in the Spring. I will post it HERE after publication.

Egyptian Cell Service Introduced in North Korea

I had the displeasure of visiting North Korea on a few occasions. Maybe on my next trip I will be able to use my cell phone.

The Egyptian company, Orascom Telecom, announced that it is investing $400mil in North Korea to develop a 3G Mobile Network. CHEO Technologies, which is 75% owned by Orascom and 25% owned by North Korea, won a 25-year-license to operate the network.

The network went online today. Orascom noted that service will be expanded to most major cities by the end of the year.

It is puzzling why this company would invest in North Korea. At present, most North Koreans are not allowed to own phones and the Internet is strictly controlled. Also, I hope Orascom realizes that they have no remedy for contractual breaches and North Korea is not known for honoring contracts.

Korean Investment in Asia and the West is on the Decline

A few news sources, including Law Times, have announced the financial crisis is curtailing Korean company’s investments abroad.

Kumho Tire has announced that it will suspend the building of a tire plant in Georgia. The project was scheduled to be completed in the second half of 2009.

Kia motors will likely not go forward with a $1 billion assembly plant in Georgia.

Posco Steel planed to continue its plans of building a $12 billion mill in India and a $5million mill in Vietnam. However, news has spread that the plans were scraped because of disputes with the governments.

I have a few clients that have suspended their Southeast Asia projects because of the Won’s collapse. One of the projects is the building of one of the tallest buildings in Cambodia. The foundation and a few floors have already been built.

Many in the real estate market believe that many Korean invested projects will be suspended until the won stabilizes at 1,15o. I am a little more hopeful and believe that projects that have commenced will proceed on schedule, if positive economic sentiment returns early in the New Year.

Financial Crisis: Doopey Hacks and Savvy Crooks

By Sean Hayes (Korea Times 12/11/08)

Discord in our financial institution is not caused by structured finance (securitization) or other ``complex" financial instruments, but dopey hacks and savvy crooks.

I had a conversation with an attorney from one of Korea's best known law firms. The attorney, to my surprise, was obviously not familiar with securitization and thus naively blamed the financial crisis on these ``complex schemes.''Securitization may be considered a complex scheme, but complex does not necessarily have to lead to tribulations.Chess is one of the most complex games man has made.

Few understand or can even spell Latvian Gambit or Alehine's Defense.However, chess and the complex tools (moves) used are not maligned because of complexity. However, a hack player leads to poor games and cursing by eccentric masters.

Likewise, the securitization tool in the hands of hacks leads to poor performing markets and cursing taxpayers. When we throw the crooks into the mix the situation is exasperated and leads to lawsuits, defaults, write-downs and eventually government bailouts.Securitization should not be maligned because of its players, since without it our access to capital would be stymied, interest rates would rise, and our growth rates would decrease.

In America, the advent of our modern structured finance, in the mortgage industry, began in the early 1970s by Ginnie Mae.Ginnie Mae, a government corporation, intended, through securitization, to create a secondary market for residential mortgages, thus, increasing liquidity. This increased liquidity led to an increase in homeownership.Securitization is not as complex as one would imagine.

Securitization, in short, is simply when a non-marketable asset is converted into a marketable security. This is accomplished, in the mortgage context, by the pooling of an originator's illiquid individual mortgages.The new pooled security is then sold by the originator to other financial institutions, thus, replacing a potentially non-performing asset on the originator's books with cash.The cash can then be used to offer more mortgages.

Thus, the originator does not need to raise additional cash through the more expensive tools of issuing debt or equity.These mortgage-backed securities (MBS) are enticing to investors, since they guarantee a fixed rate of return.

All individuals, including homeowners, benefit from securitization, since it increases market efficiencies while promoting additional access to capital.Problems occur when markets are dominated by dopey hacks and savvy crooks.

For example, a type of security called a collateralized debt obligation (CDO) is a security, in short, where assets and loans are pooled and the pool is divided into classes (tranches).Each tranche represents a different risk with the higher risk tranche receiving a higher yield than a lower. The safer, lower yielding tranche, normally is the senior tranche, thus during default, will be paid first. CDOs allow great flexibility, thus encouraging more investment.Problems occur when language in the agreement is worded in a manner that obfuscates.

The unintentional obfuscation by the dopey hack or the intentional obfuscation by savvy crooks causes litigation.For example, Citigroup's billion-dollar CDO is ending in litigation because of conflicting language in the CDO contract.

This wouldn't occur if it was drafted in a clear manner and all parties were astute enough to understand the implications of their investments.These same dopey hacks and savvy crooks had their hands in our rating agencies, government sponsored enterprises, financial institutions, congressional hallways, academic institutions, think tanks and even in some of our best known law firms.

Sean Hayes is a New York attorney working with the Seoul office of LOGOS Law LLC, one of Korea's largest international law firms with offices in Beijing, Hanoi, Ho Chi Minh City, Incheon, Moscow, Phnom Penh, Seoul, and Songdo. He formerly worked as a law faculty member and for the Constitutional Court of Korea. He can be reached at SeanHayes@LawLogos.com

Politics Takes Backdoor to Progress

Politics Takes Backdoor to Progress

By Sean Hayes (Korea Times 12/03/08)

South Korea and India are scheduled to sign a Comprehensive Economic Partnership Agreement (CEPA). The accord will offer more opportunities for trade. However, many reforms are needed in both nations before the full benefits of the pact and free trade are realized.

For my Korean and international clients looking to invest in India, one of the most alarming discoveries is the dreadful state of the Indian banking sector.Many investors are hopeful for the continuation of 9 percent growth in India, but fear that if foreign direct investment (FDI) decreases, because of our present financial situation, it is likely that India's growth rate will drastically fall, which will naturally lead to fewer opportunities and benefits from investing in India.An interesting seminar, which I had the pleasure to present a paper at, hosted by the Asia-Europe Perspective Forum and the India-Korea Business and Policy Forum, was held Thursday.

The seminar discussed some of the necessary reforms that both nations need to quickly adopt. My presentation, at the seminar, emphasized business opportunities for Korean and Indian companies, while noting reforms that are needed in both countries.

In India, necessary reforms must be immediately implemented, according to many observers, in the banking sector. However, many fear that political interest groups in Korea and India, for their own self-interest and possibly self-preservation, will never allow them and that the status quo is likely to remain unchanged in the foreseeable future.

For example, India is vigorously seeking FDI mainly because of the lack of funding opportunities for local companies and the difficulty Indian companies face in obtaining external commercial borrowing (ECB).One reason for the funding difficulties, amongst others, is that India's financial sector is controlled by state-owned commercial banks, which are required to lend to ``priority" sectors.The Statutory Liquidity Rules (SLR) require that 25 percent of bank deposits in government securities, the nation has a low savings rate, the local stock markets only account for around 140 percent of GDP, and the bond market is dominated by the debt-ridden government (90 percent of the bond market in government debt).

These facts led to an economy that lacks the ability to adequately fund needed industries and corporations. Thus, FDI and ECB are vigorously sought.The answer to this problem, at first blush, is obvious. However, India is often, for political motivations, not willing to pursue the obvious.

India, first, needs to privatize banks. Nearly 80 percent of the assets and deposits in the banking sector are controlled by state-owned commercial banks. These banks are notorious for allocating capital in an inefficient manner.Secondly, India must lower the amount mandated to be loaned to priority sectors. Regulations mandate that state-owned banks must provide 40 percent and private banks 25 percent of their funds to priority sectors.

These sectors include politically sensitive entities such as agriculture enterprises and small businesses. These sectors' loans have a high likelihood of being non-performing and often are in industries that are returning very low returns on investment, thus leading to an inefficient use of capital.Additionally, India's high amount of government debt, SLR, and low stock market capitalization effectively creates a situation where companies have few internal sources of funding.

The answer lies in these and other liberalizations and the development and fostering of a vibrant and liquid market for corporate bonds.Koreans played an instrumental role in launching the Vietnamese stock market and will launch a Cambodian stock market. There experience in developing markets could be beneficial to an India striving to maintain consistent growth.

Hopefully, for the sake of India, politics will take a back door to development.

Sean Hayes is a New York attorney working with the Seoul office of LOGOS Law LLC, one of Korea's largest international law firms with offices in Beijing, Hanoi, Ho Chi Minh City, Incheon, Moscow, Phnom Penh, Seoul, and Songdo. He formerly worked as a law faculty member and for the Constitutional Court of Korea. He can be reached at SeanHayes@LawLogos.com

Garnishing Pay in Korea

Garnishing Wages in Korea

I received a call from a friend asking about information concerning collecting on a large debt. He loaned money to a “friend” and the friend never made a payment on the loan. Word to the wise, don't make large loans to friends----cry poverty instead.

In Korea, after a judgment or order to pay by a court, a plaintiff can collect on an unpaid debt through garnishing of wages. Garnishing of wages is normally the best way to guarantee the collection of debt when a debtor doesn’t have real or personal property. Most law firms can perform the service for a modest fee.

• Less than W1.2mil (No wages can be garnished)
• W1.2mil - W2.4mil (Monthly Wage – W1.2mil)
• W2.4mil –W6mil (1/2 Monthly Wage)
• Over W6mil (Half monthly Wage minus W3mil divided by two plus W3million minus monthly wage)

Examples:

1. W2,000,000 Monthly Pay (Can garnish monthly W800,000)

2. W3,000,000 Monthly (Can garnish monthly W1,500,000)

3. W5,000,000 Monthly Pay (Can garnish W2,500,000)

4. W6,000,000 Monthly Pay(Can garnish W3,000,000)

5. W12,000,000 Monthly Pay (Can garnish W7.500,000)

6. W20,000,000 Monthly Pay (Can garnish W13,500,000)