Unpaid Invoices, Fiduciary Duties and the Police: Why Korean Commercial Disputes So Often Turn Criminal

Unpaid Invoices, Fiduciary Duties and the Police: Why Korean Commercial Disputes So Often Turn Criminal

Mark Benton, Foreign Lawyer (England and Wales), AHNSE Law Offices

Foreign companies usually expect a commercial dispute to follow a familiar path: a letter before action, negotiation and, if necessary, a claim in court or arbitration. In Korea that model is incomplete. A disagreement over money, a failed joint venture or a boardroom fallout can quickly acquire a second front: a criminal complaint lodged with the police or the prosecution service. Understanding why this happens, and how to prepare for it, is a core part of managing Korean risk.

Why the criminal route is attractive to claimants

Three features make a criminal complaint a natural companion to a civil claim.

First, the cost and burden fall largely on the state. Investigators interview the parties, request documents and, in appropriate cases, obtain warrants. A claimant that would struggle to obtain evidence through civil procedure can, in effect, have the authorities gather it.

Second, the core property offences in the Criminal Act are broad enough to capture conduct that common lawyers would regard as contractual. Fraud under Article 347 covers obtaining property or a pecuniary advantage by deception, and is often alleged where a party took money or credit while allegedly never intending, or being unable, to perform. Article 355 covers embezzlement by a custodian of another’s property, and breach of trust by a person who handles another’s affairs and, in breach of duty, obtains a benefit while causing the principal loss. Article 356 applies a heavier penalty where the conduct occurs in the course of business, which is the usual position for directors and managers.

Third, the leverage is considerable. Even a complaint that ultimately fails consumes management time, creates reputational concern and, for foreign nationals, may affect the ability to travel.

The penalties have real weight

These are not technical offences. Following an amendment in force from 23 December 2025, the maximum penalty for fraud under Article 347 rose from 10 years’ imprisonment or a fine of KRW 20 million to 20 years’ imprisonment or a fine of KRW 50 million. Embezzlement and breach of trust under Article 355 carry up to five years’ imprisonment or a fine of up to KRW 15 million, and the occupational versions under Article 356 carry up to 10 years or KRW 30 million.

Where the amount gained is large, the Act on the Aggravated Punishment, etc. of Specific Economic Crimes applies. If the gain is KRW 500 million or more but less than KRW 5 billion, the minimum sentence is three years’ imprisonment; at KRW 5 billion or more, the sentence is life imprisonment or not less than five years. In a mid-sized joint venture or investment dispute, those thresholds are easily reached on paper, which is why complainants frame allegations around the full value of a transaction.

The travel question for foreign executives

For many foreign clients, the most immediate concern is not conviction but mobility. Under Article 29 of the Immigration Control Act, the Minister of Justice may suspend the departure of a foreign national on the same grounds that permit a travel ban on Korean citizens under Article 4, including where departure is considered inappropriate for a criminal investigation. For investigation purposes the period is generally up to one month, but it can be extended, and notice may be withheld where it would seriously obstruct the investigation. An executive flying in for a board meeting while a complaint is pending should take advice beforehand rather than discover the position at the airport.

Typical flashpoints

Criminal complaints arise most often in the following settings:

• Joint ventures and shareholder disputes, where one side alleges that the other diverted opportunities or caused the company loss for its own benefit.
• Investment funds, where money raised for a stated purpose is said to have been applied elsewhere.
• Unpaid debts and supply contracts, where a creditor reframes non-payment as deception at the time the obligation was incurred.
• Departing employees and executives, where labour claims are accompanied by allegations of breach of trust or criminal defamation.

Using, and defending against, the criminal route

For a claimant, the criminal track can deliver more than pressure. Where a defendant is convicted of fraud, embezzlement or breach of trust at first instance or on appeal, the court may make a compensation order under Article 25 of the Act on Special Cases Concerning Expedition of Legal Proceedings, of its own motion or on the victim’s application, and a final order can be enforced like a civil judgment. However, the loss must be clearly specified, and an application cannot be made while a tort claim for the same damage is pending. An exaggerated or tactical complaint also carries risks, including the offence of false accusation.

For a defendant, the priorities are different:

1. Treat the first summons as a litigation event. Statements given to investigators form part of the record; it is rarely wise to attend without counsel.
2. Assemble the contemporaneous record early. Board minutes, bank records and messages often decide whether intent or breach of duty can be shown.
3. Align the civil and criminal strategies. Positions taken in pleadings, arbitration or settlement talks will be read by investigators, and vice versa.
4. Consider resolution with care. Settlement often matters, but fraud, embezzlement and breach of trust do not automatically end when the victim withdraws, so any agreement should be structured with the criminal process in mind.

Prevention remains the best defence

The most effective protection is put in place before any dispute arises: contracts that state the purpose of funds plainly, segregated accounts, documented board approvals for related-party arrangements and a clear record of who held authority for key decisions. Assume that every email and messaging thread may one day be read by an investigator.

Most Korean disputes are still resolved commercially. However, a business that treats a Korean dispute as purely civil is planning for only half of the possible outcomes. Early, joined-up advice on both tracks is the surest way to keep a commercial disagreement commercial.

This article is for general information only and does not constitute legal advice. Specific advice should be sought on any particular matter.