Foreign clients are often surprised to learn that, in Korea, an unpaid invoice, a failed joint venture or a disagreement over how investment money was spent can quickly involve the police or the prosecution service. Korean law allows criminal complaints for fraud, embezzlement and occupational breach of trust to run alongside, or ahead of, a civil claim, and complainants frequently use them to apply pressure.
From a cross-border perspective, the risks are practical. A foreign director may be summoned for questioning, may face a travel ban while an investigation is under way, and may find the matter discussed in the Korean press. Investigators will review contracts, accounting records, emails and KakaoTalk messages to assess intent at the time of the transaction and how funds were actually applied. Informal side arrangements, loosely drafted English-only documents and the mixing of group and local company funds tend to make matters worse.
Sensible steps include documenting the commercial rationale for related-party transactions, obtaining proper board approvals, ring-fencing investment funds for their stated purpose, and briefing management that internal messages may end up in an investigation file. Where a dispute is brewing, early advice on both the civil and the criminal exposure is usually far cheaper than responding to a complaint after it has been filed.
Mark Benton, Foreign Lawyer (England and Wales), AHNSE Law Offices, Seoul
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