Korea’s Improper Solicitation & Graft Act?: Scope of Application

The Scope of Application of the Improper Solicitation and Graft Act of Korea (“Graft Act”) was a hotly contested issue that led to Korean court challenges.  The Constitutional Court of Korea has upheld the Graft Act of Korea.  More details, including a list of articles on the Graft Law of Korea, may be found at: Improper Solicitation & Graft Act of Korea. The Scope of Application is defined in Article 2 & Article 11 of the Bribery Act.  The Act applies to both Korean and foreign nationals.  The Act applies to foreign nationals, only, for prohibited acts within Korea and to Koreans for prohibited acts universe wide. Summary of the Scope of Application of the Graft Act of Korea Article 1(a) Institutions Highest Government Organs (National Assembly, Ordinary Courts, Constitutional Court) Other Government Organs (election commissions, Board of Audit and Inspection, Human Rights Commission) Central Government Administrative Agencies Local Governments

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Fiduciary Duties of Korean Directors/Representative & Controlling Shareholders of Korean Companies

Directors of companies, registered in Korea, many be held criminally and civilly liable for acts as a director (in limited cases even controlling shareholder can be held criminally liable).  Many acts (or inactions) that would not be deemed criminal in the West are, often, deemed criminal in Korea.  Additionally, matters that are considered in the West as mere “civil” matters, often, begin and end at the Korean prosecutor’s office. A little due diligence, complying with corporate formalities, nuanced corporate governance practices and a little street smarts coupled with good liability insurance is a good start in succeeding in business in Korea. We have been on both sides of matters were directors (and even controlling shareholders) have been prohibited from departing Korea, jailed and fined.  In most cases, liability is unlimited and it is presumed that a director has complied with the decision of the Board of Directors if no dissent

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Korean Compliance Checklist for your Business in Korea

The following Korean Compliance Checklist is intended to provide, only, a basic overview of the necessaries for keeping the law and shareholders off your back.  We, highly, recommend having a compliance audit preformed – if you have not completed a compliance audit of your Korean business in the past or recently.   1.  Do you Have a Registered Company/Business? Operating in Korea is not as simple as just leasing an office.  All businesses whether in the form of a corporation or sole proprietorship in Korea are required to register as business with the tax office and local government offices.  For some businesses the approval of a government agency shall be required.  Other articles on Korean corporate forms may be found at: Establishing a Company in Korea: Under Revised Corporate Code Limited Liability Companies Under the Revised Korean Commercial Code 2.  Do you Have Employment Agreements, Employment Rules, License Agreements, Joint

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Choice of Law Issues in Employment Disputes in Korea

Choice of law/jurisdiction issue often arise in Korea when an agreement chooses a law/jurisdiction for resolution of a dispute other than Korea, internal conflicts in the agreement exist (yes this happens) or no choice of law/jurisdiction clause was chosen and the agreement seems to be better handled by a foreign court, or by the law of the foreign jurisdiction, because of, inter alia, the locale of witnesses and the subject matter of the agreement. Choice of law/jurisdiction issues are governed in Korea mainly by Korea’s Private International Act (KPIA).  However, other acts often trump the KPIA, or else the courts use built-in “public policy” arguments to allow Korean law to trump the non-Korean chosen law. For example, in the majority of employment law disputes, Korea courts have invalidated choice of the law and jurisdiction clauses that note a law or jurisdiction other than Korea. For example, if a employer hiring someone for

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Distribution Agreements in Korea: Crawl before you Walk

Prior to going into any relationship with a distributor/agent in Korea, please read my post entitled: Finding a Korean Distributor: The Top 10 Things to Know Before Going to Bed with a Distributor in Korea. Please read that post in combination with this post, prior to engaging a distributor in Korea. We see too many Korean distribution agreements that are mere spun U.S. or European agreements.  Please have your Korean distribution agreement and all agreements you have in Korea drafted by an experienced and proactive attorney that has on-the-ground experience in Korea.  We see too many issues that could have been easily resolved by a carefully drafted agreement and a little due diligence. Issues to consider for your Korean Distribution Agreement: Will your distributor in Korea be your agent?  If the Korean distributor is an agent, generally, you will, only, be paying your agent In Korea a commission and you will be

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Korean Business Culture vs. Western Business Culture Explained by IPG Attorneys

We, often, have clients that proclaim that they can’t understand the way that Koreans do things.  They complain about an inability to reason, keep promises, express opinions and give a straight answer. Koreans have plenty of complaints about Westerners also.  Koreans, often, complain that Westerners concentrate too much on details and not enough on the big picture, care about money more than friendship and focus too much on efficiency. The root of these issues is vastly different cultural realities. Korean Business the Gangnam-Style Way The Lewis Cultural Model does an excellent job of explaining these differences.  The Lewis Cultural Model breaks cultures into three distinct categories: Linear-Active; Multi-Active; and Reactive. Linear-Active Cultures Linear-Active cultures base decisions and actions on logic.  Individuals in these cultures tend to be efficient, schedule oriented, and base decisions on a plan and reason.  These individuals are often criticized for focusing too much on the task at

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Injunctions Against your Former Franchisee for Competing Against your New Franchisee: Korean Franchise Law/Injunction Basics

Under the Fair Franchise Transactions Act of Korea (“Franchise Act”), a franchisee has the right, under Korean Law, to request the renewal of a Korean franchise agreement after ten years of successful operation of a franchise.  The Korean Franchise Act Article 13 (2) stipulates that: “A franchisee’s right to request the renewal of the franchise agreement may be exercised only when the total period of the franchise agreement, including its initial period, does not exceed ten years.” We wrote about termination of a franchise in other articles including: Termination of a Franchise in Korea. Courts in Korea are becoming increasingly apprehensive to enforce injunctions against operating of competing businesses filed by franchisors against franchisees.  The situation, often, occurs where a franchise is terminated and the franchisee operates a like business in the same location as the prior franchise.   Of course, all professionally drafted franchise agreements in Korea will have

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Involuntary Dissolution of a Company in Korea: Shareholder Disputes in Korean Companies

Under Article 520 of the Korean Commercial Act, a minority shareholder, holding at least 10 percent of the total and outstanding shares of a Korean company, may request to the Korean court of competent jurisdiction the dissolution of a company in Korea.  Korean court judges consider this procedure an extraordinary procedure and, only, rule in the affirmative, usually, after all other avenues to resolve the shareholder dispute have failed. However, this procedure is useful, in many disputes, in resolution of the shareholder dispute via litigation or pushing the defaulting shareholder into a settlement. Article 520 of the Commercial Act of Korea (Judgments for Dissolution) “(1) If, in any of the following cases, there exists unavoidable reasons, any shareholder who holds shares representing no less than 10 percent of the total issued and outstanding shares may request a court to dissolve the company; When the company’s business operation continues to be

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Damages for Material Omissions in Franchise Disclosure Documents in South Korea

In April of 2015, the Supreme Court of Korea ruled that under Article 4; Article (9)(1); and Article 41(1) of the prior version of the Fair Transactions in Franchise Business Act (“Franchise Act”) damages may be obtained, from a franchisor, for all material omissions (Supreme Court 2014 DA 84824,84831, April 9, 2015) within Korean Franchise Disclosure Documents. Monetary damages may be obtained under Article 37(2) of the Franchise Act of Korea and Article 56(1) of the Monopoly Regulation and Fair Trade Act of Korea for “material omissions” within Franchise Disclosure Documents and other document presented to prospective franchisees. The damages may include the cost of build-out, rental, franchise fees and even, in some cases, lost opportunity costs.  Additional, in some cases fines may be imposed, franchises can be de-registered and criminal charges may be brought against employees and management. The Fair Trade Commission may, additionally, impose a fine, even if

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Can you Succeed in Korea without Resorting to Bribery?

Perhaps in a few warped ways, I have a bit of affection for the Foreign Corrupt Practices Act, which bars American companies from bribing officials overseas. From a nostalgic perspective, I recall when this act was made into law while I was at my first “real job” at The Chase Manhattan Bank in Seoul. The immediate reactions around me in the US business community were those of dread. We were certain that we would be put to disadvantage when competing with the locals as well as with other foreign nationalities. It turned out not to be the case. In fact, by and large we discovered the act gave us legitimate cover not to “go local” in conducting unethical and potentially sordid business practices. In time, other Western nations passed similar laws. While this clean business movement has hardly eradicated corruption, it has contributed to reducing unethical business behavior – most

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Korea Blockchain Law Society Founded: Korean Crptocurrency Law Updates

The inaugural meeting of the Blockchain Law Society of Korea was held last week.  We wrote on the Korean Law Blog articles on Korean Blockchain/Alt Currency Law and shall be participating in the Blockchain Law Society and updating the reader on issues addressed by the Blockchain Law Society.  You shall find more articles on Blockchain, Alt currenices, Korean Crypto-currency Law and like topics on this blog over the next couple of months. We are looking forward to more lively discussions and hope that the Korean Blockchain Law society shall lead to a comprehensive Korean CryptoCurrency -Blockchain Law that does not lead to destruction of a unique and potentially profitable business opportunity for entrepreneurs in Korea and entrepreneurs that wish to invest in Korea.  We hope that foreign investors are, also, considered in these meetings and in the drafting of these laws.  Foreign investors play a key part in Korean business and locking

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Civil Court Proceedings in Korean Courts: Korean Civil Litigation Basics

The following is a timetable-based outline of Korean Civil Court Proceedings at Korean Courts.  Please note, this is the typical civil court proceedings and exceptions do and, often, exist at Korean civil courts.  Korean civil courts are less procedure focused than U.S., British, German and other Western nations’ courts, thus, allowing more flexibility for judges and the parties. The proceedings at Korean courts of first instance is, typically, completed within one year from the filing the complaint to a district court and appeals to the High Court in Korea (court of second instance), typically, is completed with ten months of filing the appeal to the Korean High Court.  Appeals to the Korean Supreme Court may, sometimes, take multiple years to complete. We have excluded from this list proceedings within the Constitutional Court of Korea, Korean Family Courts, the Korean Administrative Courts, Patent Courts, Small Claims courts and other special courts. 

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Korea’s Improper Solicitation and Graft Act: Kim Young-ran Act

The Improper Solicitation and Graft Act of Korea (“Graft Act”) was enacted on March of 2015 and came into effect in September of 2016.  Korea’s Anti-Corruption and Civil Rights Commission published in English and Korea a decent Handbook to the Graft Act.  The Handbook may be found at: Handbook to Korea’s Graft Act.  All companies doing business in Korea should understand compliance basics and have an understanding of the myriad of compliance rules.  The Graft Act is, only, the tip of the iceberg.  We shall be focusing on Korean compliance basics over the next couple of months on this blog.  The Moon Administration and the Korean FTA have aggressively acted upon alleged malfeasance in Korean companies and this is a time to consider a compliance audit, redrafting of compliance policies and procedures and, potentially, your employment rules. Please check back to the Korean Law Blog.  We shall be writing over the

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USA Today cites The Korean Law Blog and IPG Attorney Sean Hayes on Casino Gambling Law

An article in USA Today on Casino Gambling in Korea cites The Korean Law Blog and the main author of this blog on Casino Gambling in Korea.  The article may be found at:  South Korea wants to build casino industry where all are welcome but Koreans. The article notes, in part, that: “According to the Korea Center on Gambling Problems, which was established by the government in 2012, the prevalence of gambling addiction is two-to-three times higher in Korea than in other major countries. While it’s unclear how those statistics are compiled, the notion that Koreans are uniquely susceptible to gambling addiction is a widespread social theory that informs the laws surrounding the issue.” [ABTM id=1137] (c) Sean Hayes – SJ IPG. All Rights reserved.  Do not duplicate any content on this blog without the express written permission of the author. [email protected]

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Digital Forensic Reviews at the Korean Fair Trade Commission

The Fair Trade Commission of Korea (“KFTC”) implemented in April 2018 rules governing the review of digital evidence in investigations of businesses at the KFTC.  The rules are entitled the Regulations on Collection, Analysis and Management of Digital Evidence (“Digital Forensic Evidence Review Rules”).  The rules have changed the manner of executing investigations at the KFTC in cases where the KFTC perceives a need for a detailed forensic audit. As of 2017, the KFTC has engaged in digital investigations via a division named the “Digital Investigation and Analysis Division.”  This Division hired technical computer staff that is assisting in investigations.  This Digital Investigation and Analysis Division has engaged in aggressive gathering of forensic evidence from companies. The key aspect of the Regulations on Collection, Analysis and Management of Digital Evidence is to put in place procedures for the handling, storage, collection, security, disposal and processing of digital evidence in order to increase

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Enforcement of Arbitral Awards in Korean Courts: Arbitration Law Basics

After an arbitration panel outside of Korea renders an arbitral award against a Korean company or individual, typically, if the non-prevailing party lacks assets outside of Korea or the prevailing party needs to enjoin acts in Korea, the prevailing party chooses to enforce the arbitration award in Korea.  Enforcement is not as easy as just giving arbitral awards to non-prevailing Korean parties.  For enforcement of foreign judgments in Korean courts please see: Enforcement of Foreign Judgments in Korean Courts.  When enforcing foreign arbitral awards in Korea, Article 37(1) & (2) of the Arbitration Act of Korea comes into play, thus, leading to the need to apply Korean Law to the enforcement of the arbitral awards and utilize a Korean court for enforcement. The good news is that in 2016, the Arbitration Act of Korea was amended to, among other things, allow for a quicker and less cumbersome manner of enforcing

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Korean FTC Criminal Referral Guidelines: Monopoly & Franchise Korean Law Updates

The Fair Trade Commission of Korea (“Korean FTC” or “KFTC”) amended the Korean FTC’s Criminal Referral Guidelines (“Amended Guidelines”) to motivate more active and aggressive enforcement of Korea’s Franchise, Monopoly and other related laws.  We have seen a much more active enforcement of Korean law by the Korean FTC and expect more criminal referrals. The Amended KFTC’s Criminal Referral Guidelines places a very low threshold for referring a case for a criminal prosecution of employees and companies.  The Amended Guidelines are effective since April 9, 2018. Prior to the present amendment, the prior Guidelines emphasized on, mainly, making criminal referral against key management and company representatives that were alleged to have taken in part in “high level” violations.  The Amended Guidelines places a bulls eye also non-management employees and lowers the threshold for referring a case for prosecution. The Guidelines notes that adjudicating officers shall look, mainly, to: (a) the

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Korea’s Occupational Safety and Health Act Amendments for 2018 (OSHA Korea Updates)

Because of the perceived need, in Korea, to protect workers’ emotional and physical health in the service sector, the Occupational Safety & Health Act of Korea (“OSHA Korea”) was amended.  The major OSHA Korea amendments impose a: Duty on Employers to Protect the Emotional & Physical Health of Employees  The OSHA Korea Amendment mandates employers, in the service sector, to protect the emotional and physical health of employees from abusive acts of customers.  We do not, yet, have substantial details on the actions needed to be taken by employers to meet these legal obligations.  Enforcement actions against employees and an enforcement decree shall shed light on the specifics and we shall update the reader when more is known.We advise that employers in the service sector review policies in place in order for employers to not run afoul of the new OSHA law.  It seems like a proactive approach that includes

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Dismissal of Employees in Korea: Supreme Court of Korea Precedent

The Korean Supreme Court ruled, in March of 2018, that a company may terminate employees for one incident of employee gambling.  The case stems from the termination of drivers that were caught on one occasion gambling prior to driving buses. The lower courts ruled, in short, that gambling was not a serious enough offense to justify termination since: The act of gambling, only, occurred on one occasion and thus trust between the employee and employer has not broken down; The employees performed their job functions adequately; and The non-termination of employment of the employees would not significantly interfere with the ability of the employer to successful continue its business- if the employees do not engage in these acts in the future. The Supreme Court reversed the decision of the lower court and noted that: Gambling could effect the rest period of the drivers and the job of the drivers requires

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Duty to Report Product Defects in Korea

Korean law emphasizes the obligations a seller of goods has to a buyer in the event that a good that the seller manufactures, imports, sells, or supplies is defective.  The product defect reporting obligations are extensive and not reporting may have significant impact on your business in Korea.  This Duty to Report is codified, in part, under Korea’s Framework Act on Consumers and Framework Act on Product Safety.  This post is, only, intended as a short introduction to these acts.  Additional explanations shall follow in posts over the next few weeks.  For a general article on damages for product liability please see:  Product Liability Damages in Korea and for a general article on mass torts and class action law suits in Korea please see: Class Actions/Mass Torts in Korea. In short, in some cases, business entities are required to report defects of goods which cause or are likely to cause danger

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