Senior Prosecutor Arrested for Bribery in Korea

Kim Kwang-joon, according to local Korean vernaculars, was arrested on Monday for receiving bribes. The prosecutor is suspected of receiving close to USD 1,000,000 in bribes relating to a pyramid scheme and influence peddling for Eugene Group (Korean conglomerate). This type of case occurs throughout the world, but in Korea the punishment, rarely, fits the crime. Korea must realize that the most serious crimes to the nation are crimes concerning government corruption. These crimes go to the very fabric of the Korean system of government, a system that is increasingly not trusted by the population. Many of the young in society believe that the country is ruled (maybe rightfully) by a handful in society – this handful is believed to be above the law. When this risk from the youth is realized, the punishment will increase and more in the population will fear the wrath of law enforcement. To date,

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Limiting Director Liability in Korea under new KCC

We have advised all of our clients to promptly revise their articles of incorporation of their Korean companies to take advantage of changes to the Korean Commercial Code.  One revision that should be, immediately, done is limiting the liability of your Korean inside and outside directors.  Article 400(2) of the Korean Commercial Code allows a company to limit the liability of an inside director to six times the amount of compensation given to a inside director by the Korean company in the previous three years and three times the amount of compensation given to an outside director in the previous three years. Again, the company’s articles of incorporation must be revised to take advantage of this liability limitation.  A court may disallow the limitation if an action or inaction is deemed by the court to be perpetrated with intent or in a grossly negligent manner. Other articles that may be

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Nine Musts for a Succesful License Agreement in Korea

License Agreements in Korea are too often, simply, a spinning of license agreements used in the West.  Your foreign license agreement, in most cases, is not adequate for your needs in Korea.  Our 9 Musts before Engaging in a License Arrangement in Korea 1.  Due Diligence Say it three times and read my posts:  Doing Business in Korea:  Due Diligence, Agreements, Attorneys and Street Smarts 2.  Royalty Clause  Include in your license agreement a royalty clause.  The clause should detail, at a minimum:  Currency conversion rate or payment in the currency of your home nation  Payment terms  Accounting and audit particulars  Tax treatment 3.   Inspection  An inspection of the first batch of goods is a necessity and periodic inspections are recommended for most products.  Agents are available to conduct these inspections. 4.  Choice of LawIf the license is for a smaller value, often, it is best to simply utilize Korea as

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U.S. Foreign Corrupt Practice Act Basics for Korean-based Business Enterprises

If you are working for a U.S. Company with an office in Korea or you are working for a company from most other developed and developing economies you may be subject to punishment under the laws of your home country related to the interactions of you or your employees with foreign government employees.  If you want to say out of the clink and avoid embarrassment to your company by actions of your employees in Korea, please read and understand the following. Prior to engaging in any activity that may be construed as a “corrupt payment” under law, please consult with an attorney in order to decide whether the action may be construed as a “corrupt payment.”  The terminology “corrupt payment” is the term utilized under the U.S. Foreign Corrupt Practice Act.  Other like terminology is used by other nations.   Under the U.S. Foreign Corrupt Practice Act a Corrupt Payment is

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Korail vs.Lotte: Lesson for Investors in Korea

A promising development project may be scrapped because of a peculiar battle for control between a Korean conglomerate and a Korean government-controlled enterprise.  The feud is a lesson for investors who believe that investing in a project with the involvement of the Korean government will assist in guaranteeing success.  Often the involvement of Korean government enterprises overly complicates matters and leads to power struggles between the “experts” and the government.  Because of Korean government realities, however, often the involvement of a Korean government enterprise is required.  This project is an exciting project for many of our domestic clients struggling in this market and hopefully personality conflicts will not put in jeopardy a great project that will revitalize an area that is the geographic center of Seoul and could become a new downtown in a district that will loose a great deal when the U.S. military base is relocated. The following

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Top Ten Mistakes of Companies Doing Business in Korea

Our law firm has been dealing in Korea with foreign clients doing business in Korea of all shapes and sizes.  Surprisingly, we see many of the same issues from our multinational clients that we see from our SME clients, thus, we drafted this post.   TOP TEN ERRORS OF COMPANIES IN THE KOREA MARKET Lack of market research.  Selling in China, Japan, Malyasia, Singapore etc. is vastly different than selling in Korea.  Get a good local market research study concluded by a local market research company.  No Due Diligence or Poor Due Diligence.  Read my posts on this issue. Listen to my Mother: JVs in ASIA;  Doing Business in Asia: Due Diligence, Agreements, Attorneys and Street Smarts. Register your trademarks.  Your international filing is not adequate protection in Korea. Read my post on the issue at: Don’t Just Trust Us: Trademarks in Korea Draft Korea-tailored contracts.  Your international joint venture,

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Finding a Korean Distributor: Top 10 Things to Know Before you Jump into Bed with an Agent in Korea

Too often we deal with clients looking to collect on unpaid invoices to distributors/customers in Korea and resolve IP and other disputes between these distributors/customers because of clients rushing into relationships without vetting out the anticipated distributor or having a very poorly drafted distribution agreement.  Many distributors in Korea are fantastic, while, others are nothing more than order processors -they, simply can’t or don’t want to sell.   Additionally, in these tough economic times, too many companies, in Korea, are struggling to stay afloat.  If your distributor doesn’t know the market, you will find yourself with unpaid invoices from customers and issues with your distributor.   Do yourself a favor and consider the following before engaging a local company to distribute your products. 10 Ten Things to Consider Prior to Doing Business with a Distributor in Korea Has the Korean distributor worked with other foreign companies?  If not, you are dealing

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Constitutional Court of Korea Declares Internet Real-Name Online Identification System Unconstitutional

The Korean Constitutional Court, unanimously, declared Clause 5 of Article 44 of the Act on the Promotion of Information and Communication Network Utilization and Protection implemented in 2007 unconstitutional in late August of this year.  This Korean law was passed in reaction to suicides of Korean celebrities.  These celebrities were criticized online for various improprieties and alleged improprieties.  The law required, on certain websites, the logging into the website with one’s national identification number, thus, limiting the ability to speak anonymously. Numerous Constitutional Law scholars and free speech advocates emphatically argued that the law was nothing more than an attempt to stifle political speech.  Since, naturally, posters would fear the wrath of the government if criticism was levied against the government or heads of Korean corporations. The Constitutional Court, in striking down the law, noted that: “Restriction on freedom of expression can be justified only when it is clear that

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Top 10 Conglomerates in Korea equals 76% of GDP

Chaebol.com has reported that the Top 10 largest companies in Korea account for over 76% of the Gross Domestic Product of Korea, while the top 30 companies on the Korean Stock Exchange account for over 59% of the value of the market.  The statistic is alarming to outsiders, but not surprising to those on the ground in Korea. Samsung:         21.9 % of GDPHyundai/Kia:   12.6% of GDPSK:                 11.7%LG:                 9% The fear has always been that Korean conglomerates’ abuses in the local Korean market leaves few companies capable of competing, thus, weeding out potentially successful companies.  The largest conglomerates are doing the same abroad through dumping and other market manipulative tactics.    The Korean government has, facially, tried to protect consumers, subcontractors and competitors, however, the government and even the courts have been reluctant to do anything, but give these companies a light slap on the wrist.  A reality that may

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Keeping Your Employees Out of the Clink in Korea: Korea Corporate Compliance

The Guardian has posted an interesting report entitled Operating Responsibly in Emerging Markets: South Korea.  The report, rightfully, notes that corruption is still a major issue for companies doing business in Korea.  The report, emphatically notes that its:  “imperative for companies operating in South Korea – particularly for those with a presence in the UK – to ensure that there are strong anti-bribery and corruption policies and procedures in place.” The report notes in part that: Corruption continues to be a key challenge for a business seeking to operate responsibly in South Korea. Ranked by Transparency International in 2011 as the 43rd most corrupt country out of 182, recent reports have questioned the effectiveness of anti-corruption law in South Korea and its enforcement. According to a report from Herbert Smith on anti-corruption in Asia, South Korea’s Act on Preventing Bribery of Foreign Officials in International Business Transaction has only led

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Protecting Brands in Korea Getting Easier?

This week a Seoul Central District Court awarded damages to Chanel for defamation inflicted on Chanel by a room salon that was branded as Chanel Business Club.  The court noted that: “The defendant, by using Chanel’s image for his business which is commonly associated with a negative image, inflicted damage to the brand value of Chanel.”  The defendant never responded to the suit. A room salon is a type of bar where girls entertain men in private rooms by engaging in friendly banter.  Some of the clubs allow girls to leave the bar with the bar patrons.  This trend of allowing damage for damage to the business reputation is welcome, however, the damages awarded are, often, so trivial, that few brands are willing to file suit.  Chanel seems to want to, merely, warn others from using its brand in a nefarious manner. The court awarded damages to Chanel in the

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CEO/Chairman of Chaebols Serving Time in Jail in Korea?

Things may be changing in Korea.  The Chairman of Hanwha Group was sentenced by the Seoul Western District Court, today, to a KRW 4 billion fine and four years in jail for misappropriating/embezzling Hanwha Group funds.  Hanwha’s Chairman Seung-youn Kim, a few years back, was convicted of beating a young man with a pipe and threatening the life of other individuals.  The Korean Court System sentenced Kim to no time in jail for that offense and the president, eventually, pardoned Kim with a number of other presidents and chairmen of Korean conglomerates.   Is this a sign that things are changing in Korea?  Will the Seoul High Court uphold the judgment?  Will the President pardon Kim? As we know, many chairman and presidents of companies have been convicted of embezzling company money and have received no time in jail.  It will be interesting to see if this judgement will be

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Stock Options in Korea: Granting and Exercising Stock Options in Closed Corporations in Korea

For stock options in Korea to be exercisable, thus valid options, the option must be approved, in most cases, at a general shareholders meeting of the Korean company.  If approval of the shareholders is obtained the articles of incorporation of the Korean company should, inter alia, note: An intention that a stock option may be granted in specified cases;  The number of shares to be issued or transferred in the case of exercising the stock option;  Qualifications of a person to whom a stock option is to be granted; Exercising period of the stock option; and  An intention that the granting of the stock option may be revoked by a resolution of the board of directors in specified cases. Korea Commercial Act art. 340-3(3)1.  Additionally, the company granting the options should execute an agreement with the individual granting the options and the stock option should, only, be given to authorized

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There Goes the Neighborhood: Samsung “Union” Allowed to Protest in Front Of Samsung Headquarters

The Korea Times has reported that the Administrative Court in Seoul has overturned the decision of the Seoul Metropolitan Police Force to disallow a rally in front of Samsung headquarters.  The rally was to honor the memory of a Samsung Electronics employee who died of leukemia.  Samsung has been accused of using chemicals in their manufacturing processes that are harmful to the health of workers.  Some have claimed that these specific chemicals are not being used in other developed nations. Samsung and other large conglomerates are beginning to be treated equally by the government to other companies because of, inter alia, the realization that Samsung and other companies have abused their position to the detriment of the population.  Additionally, politicians are increasingly realizing that Korea future growth will likely come from SMEs and not large family-controlled conglomerates.  The Korea Times quoting Yonhap news reported that: The Seoul Administrative Court accepted

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Korea and Myanmar Now Not as Far Apart

Good news for Korea and Myanmar.  Myanmar is anticipated to be a major investment destination for Korean companies.  Korean Air, realizing this trend, has launched the first non-stop flight from Korean to Yangon, Myanmar.  The flight will commence in early September of this year.   The flight time will, thus, be reduced from 10 hours to 6 hours. If the flight is well subscribed, expect Asiana Air to quickly follow suit.  _________ Sean Hayes, IPG’s Co-Chair of the Korea Practice Team, may be contacted at: [email protected]  IPG is engaged in projects for Korean and international clients in Myanmar and much of Southeast and East Asia. (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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Korea Fair Trade Commission To Investigate European Car Makers

The Korea Times has reported that the Korea Fair Trade Commission is considering investigating BMW, Mercedes Benz, Audi, and Volkswagen for price fixing.  The Korea FTC has aggressively investigated both foreign and domestic companies for allegations of price fixing and other unfair trade practices. The Korea Times article, in part, notes that:   After monitoring the prices of BMW, Mercedes Benz, Audi and Volkswagen vehicles, the country’s most popular imported auto brands in that order, officials at the Fair Trade Commission (FTC) said Wednesday there are reasons to allege that these companies have been involved in profiteering and collusion. FTC didn’t say whether or not it will conduct a probe but on the basis of findings, it reserves the right to do so at its own discretion. The automakers have lowered the prices of their cars by an identical 1.4 percent after the Korea-EU free trade agreement (FTA) went into

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Korea Merger Remedies by Korea Fair Trade Commission

Earlier this year, Korea’s Fair Trade Commission has announced the amendment of its rules on merger remedies through the Notice on Merger Remedies.  The amendment revises the prior Merger Remedies Guidelines.  The most relevant changes are listed below. The KFTC will, only, utilize behavioral changes when structural changes are impracticable or may be ineffective.  Structural changes, include, prohibition of a merger, divestiture and the transfer of intellectual property rights.  The Fair Trade Commission has noted that the preferred choice will be divestiture and a merger injunction will only be ordered when the divestiture is not feasible in the situation.   The Korea Fair Trade Commission has noted that the guiding principles of the Merger Remedies is: Effectiveness, Proportionality and Transparency and Enforceability.  Arguments from attorneys should be directed at the KFTC ability to meet these guiding principles by proposed actions.  The KFTC has increased investigations and has become much more

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Fines by the Korea Fair Trade Commission Increases for Abuse of Market Position and Unfair Trade Practices in Korea

The Fair Trade Commission of Korea has implemented substantial amendments to its guidelines for imposing fines on companies doing business in Korea.  The Amendments were detailed in a document the Fair Trade Commission of Korea calls the “Amendment Notice.”  This Amendment Notice comes into effect on April 1 of 2012. The Amendment Notice will likely increase the fines imposed by the Fair Trade Commission.   Prior to the Amendment Notice violations of the Monopoly Regulation and Fair Trade Act would result in lower fines than that authorized by Korean Monopoly Law.  The change will, likely, substantially increase the fines. INCREASE IN FINES FOR UNFAIR TRADE PRACTICE AND ABUSE OF DOMINANCE IN MARKET The Amendment Notice will likely increase fines for Abuse of a Companies Dominant Market Position in Korea from 2 % to 3% of revenues earned because of the violation.  Additionally,the fine will be increased from 1% to 2% of

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Participating and Exchangable Bonds Issuance by Non-listed Companies in Korea

With the recent amendment of the Korean Commercial Code (KCC) and the issuance of the Presidential Decree for the KCC, Korea will now allow, when specific requirements are met, the issuance of bonds including redeemable and derivative bonds under article 469 of the Commercial Code of Korea for listed and non-listed companies.  Matters relating to issuance and management may be delegated to a commissioned trustee company.  Major shareholders, controlled shareholders and other interested parties are prohibited, by the law, to act as trustees.  Korean Commercial Code Revisions Make Capital Reductions in Korea Easier  No Court Appraisal Necessary for In-Kind Contributions to Company in Korea Classification of Directors in Korea under the Korean Commercial Code: Inside, Outside and Other Directors in Korea Establishing a Company in Korea: New Corporate Forms Available under Revised Korean Code Squeezing-out Minority Shareholders under Korean Corporate Law Limiting Director Liability under Korean Law: Don’t Drop the

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No Court Apprasial Necessary in Korea for In-Kind Contribution to Company

The Presidential Decree of the amended Korea Commercial Code notes that an appraisal by the Korean courts is no longer necessary when issuing equity stocks in exchange for an in-kind contribution in a company if: 1.  The amount of the in-kind contribution is less than KRW 50,000,000 and accounts for less than 20% of the entire equity of the company;2.  The value of the in-kind contribution is less than the book value listed in the balance sheet of the issuing company; and3.  Listed securities are contributed at a price equal to or less than the market price. Other posts on the amended Commercial Code of Korea: Korean Commercial Code Revisions Make Capital Reductions in Korea Easier Classification of Directors in Korea under the Korean Commercial Code: Inside, Outside and Other Directors in Korea Establishing a Company in Korea: New Corporate Forms Available under Revised Korean Code Squeezing-out Minority Shareholders under

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