Mar 19, 2013

Pharmaceutical Companies in Korea: Criminal Sanctions and Vicarious Liability

Early this year, the Seoul Central District Prosecutors office charged a mega Korean pharmaceutical company and a dozen of its employees with providing rebates in the amount of approximately KRW 4.7billion to hospitals.  Dozens of doctors have, also, been subpoenaed for accepting rebates through agents.  Revisions in Korean Medical Services Act, Korean Pharmaceutical Act, and the the Medical Device Act provide criminal punishment for the provider and, also, receiver of rebates.

Late last year, a similar scandal hit medical device companies.

The most important issue for my foreign readers is that it is no longer true that Korea does not have vicarious liability.  The vast majority of scholars, in Korea, believe that a corporation may not be held criminally liable as a principle of a crime.  The Supreme Court and Constitutional Court of Korea have agreed with this notion.   However, today, many laws contain vicarious liability clauses. 

The Constitutional Court of Korea has ruled that these clauses are constitutional if they do not impose strict liability.  After the decision many of the laws that contain vicarious liability clauses have been amended to provide that a corporation may not be punished if it has supervised its employees and acted with due care. 

Thus, please do yourself and your company a favor and create a transparent compliance system after a complete compliance audit.  I see too many companies not willing to have an outsider take a good look and create a transparent, yet, manageable compliance system.  The needed compliance audit, never, embarrass the executive management, thus, I am never sure of what the apprehension is of the few companies that choose to forgo the systematic compliance system for risking reputation and employees and management freedom from the clink.  

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Sean Hayes may be contacted at: SeanHayes@ipglegal.com.

Sean Hayes is co-chair of the Korea Practice Team at IPG Legal. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty.