RESOURCE MATERIAL SERIES No. 55

ECONOMIC CRIMES IN KOREA
Lee Tae-Hoon*
I. INTRODUCTION
Korea marked its 50th anniversary in1998 as a free democratic republic. Korea
was in ruins after three years of bombing
in the Korean War that came to an end withthe signing of the armistice agreement inJuly 1953. Korea, however, has madeenormous stride in economic development
since that time, particularly from the1970’s until 1997, when Korea turned to
the International Monetary Fund (IMF) fora record $58 billion rescue package. Prior
to this, the Korean economy reported anaverage annual growth rate of 8%, shiftingfrom light industries to heavy industries
in the 1970’s and into high tech industries
in the 1990’s. Korea’s Gross Domestic
Product (GDP) grew 312-fold from $1.4
billion in 1953 to $437 billion in 1997,
making Korea the 11th largest economy in
the world. The per capita income, less than
$70 in 1953, soared to the $10,000 level in
1996, although it slightly fell to $9,511 in
1997 and may decline further in 1998 if
affected by the IMF program. Exports, a
trifling $22 million in 1947 reached astaggering $136 billion in 1997. The
success story of Korean economy
culminated in Korea’s joining, in December
1996, the Organization for Economic
Cooperation and Development (OECD), theso-called ‘rich countries club’, as the second
Asian nation after Japan.
However the miraculous economic
development was accompanied by largescale economic crimes. Statistics show a
growing number of large scale economic* Branch Chief Prosecutor, Sungnam Branch Officeof Suwon District Prosecutor’s Office, Republic of
Korea

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crimes since the 1970’s, which should not
be punished as mere personal property
crimes. Given the complexity and hugeamounts involved, such economic crimes
create various socio-economic problems,and contributed to jeopardising thedomestic financial systems, ultimately
prompting Korea to enter the IMF
retrenchment program (as the cases
illustrate in this paper). It is ironical thatlarge scale economic crimes, that were thenatural outgrowth of economic
development, in turn were partially
responsible for the current financial crisis.
II. ECONOMIC CRIMES IN KOREA
A. Definition of Economic Crime
It is not so easy to define economic crime
as generally recognized. In defining theterm, there has been discrepancy between
legal practitioners’ group and legal
theorists’ group, i.e., law professors andscholars.
In Korea, it is safe to say that theprosecution represents the legal
practitioners’ group. The prosecution took
the initiative in defining economic crime
as an act that is punished among acts
which are violative of economy-related
law’s compulsions or prohibitions. In 1962,
the Supreme Prosecutor’s Office, i.e., theOffice of the Prosecutor General, issued adirective (No. 287) categorizing economic
crime for the first time in Korean modern
history. Here, 26 items which were inviolation of criminal law or economyrelated laws were named as economic
crimes.
In 1977, the Ministry of Justice, setting
new standards of crime classification,

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expanded economic crimes to 39 items. In
this directive (No. 69) the Ministry ofJustice reflected the economic changes of
Korea since the 1960’s and newly included
illegal financing and violation of
intellectual property rights as economic
crime. In 1988, the Ministry of Justice,through its directive (No. 145), again
expanded the category of economic crimeto 52 law violations. Under this directive,
violations of the Securities Exchange Act,
Unfair Competition Prevention Act,
Monopoly Regulation and Fair Trade Act
and the Act Regarding Real NameTransactions etc., were newly added toeconomic crimes. According to thisdirective, in the prosecutorial definition of
economic crime (among the 52 economic
crimes), only one crime regarding money
is in violation of the Criminal Code; the rest
are in violation of economy-related laws.
Since 1984 general property crimes suchas fraud, embezzlement and breach of trustof the Criminal Code were also added toeconomic crimes, if the damages exceededcertain amounts, i.e. W500 million($625,000). This was possible because on
December 1983, a law called “Act on the
Aggravated Punishment, etc. of Specific
Economic Crimes” was promulgated; theviolation of which was also added toeconomic crime in 1984.
However, this definition of economic
crime, from a practitioner’s viewpoint, hassome problems in establishing economic
crime theoretically. Definition is mainly
done by the names of crimes, based on theconvenience of the investigation authority.
This definition narrows the range of
economic crime too much by including
fraud, embezzlement and breach of trust
in a very restrictive way. In reality,
however, such property crimes occupy alarge portion of economic crime.

From a theoretical viewpoint, economic
crime is defined as “an act which violatesor endangers social or super-personaleconomic order or economic systems bybreaking trusts which are required ineconomic life and economic transactions.”
This definition appears to be supported bymany law professors and scholars. Of
course, there is also some criticism over thisdefinition. It is argued, for example, thatthe notion of either “breaking trusts which
are required in economic life” or “violationof social or super-personal interests” is soabstract that it is not easy to establish it
between offenders and victims. The
uncertainty or ambiguity of this definition
makes it difficult to adopt it ininvestigation practice. This ambiguity also
makes the range of economic crime too
broad.
B. Patterns of Economic Crime
Economic crimes which are committed
in Korea could be classified as below:(i) Crimes Related to Government
Finance
These crimes are with respect tocurrency, securities, postage stamps,
and include violations of the Tariff
Act, Punishment of Tax Evaders Act,Act on Government Monopoly ofTobacco Sales, Salt Control Act, Act
on Government Monopoly of Red
Ginseng Sales, etc.
(ii) Crimes Related to National Economy
These crimes include violations of the
Marine Industry Act, Decree on the
Preservation of the Marine
Resources, Foreign ExchangeManagement Act, Grain
Management Act, Act on Preventionof Draining Domestic Properties,
Petroleum Business Act, Foreign
Capital Inducement Act, Foreign
Capital Control Act, Fertilizer
Management Act, Illegal Check83

RESOURCE MATERIAL SERIES No. 55
Control Act, Act on Prevention of
Selling Specific Foreign Goods,
Interest Limitation Act, Price
Stabilization and Fair Trade Act,
Market Act, Bank Act, Special Banks
Act, Measure Act, Act on Stabilizing
Demand and Supply of Coal, Mutual
Savings Company Act, Energy Use
Rationalization Act, Act on Real
Name Financial Transactions, etc.
(iii) C r i m e s R e l a t e d t o C o r p o r a t e
Management
These crimes include violations of theForeign Trade Act, Act on the
National Association of Small andMedium Sized Enterprises,
Insurance Act, Construction Business
Act, Quality Control of Manufactured
Goods Act, Trademark Act, Design
Patent Act, Utility Model Act,
Electricity Business Act, Heavy
Vehicles Act, High Pressure Gas
Safety Control Act, Securities andExchange Act, Electric Appliances
Safety Control Act, Unfair
Competition Prevention Act, Antimonopoly and Fair Trade Act, Act onExternal Audit of Corporation, etc.
(iv) Crimes Related to Consumers andGeneral Public
These crimes are represented by
Fraud, Embezzlement, Breach of
Trust, and include violations of
National Association of Marine
Industries Act, National Associationof Agriculture Act, National
Association of Mutual Credits Act,
Live Stock Feed Control Act, Act on
Aggravated Punishment etc. ofSpecial Economic Crimes, etc.
C. Recent Trend of Economic Crime
Cases
Please refer to Appendix 1 and 2.
Appendix 1 shows the number of economic
crime cases by type and year for the period

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from 1991 to 1996. The number of total
cases of economic crimes including fraud,embezzlement and breach of trust
increased 2.7 fold from 118,771 in 1991 to
325,416 in 1996, in line with the general
growth of the national economy. It isnoteworthy that the number of economic
crimes grew even faster than the national
economy, which increased 1.8 fold from$271 billion in 1991 to $485 billion in 1996,
in terms of Gross Domestic Products.
Appendix 1 also shows that continued
increase in the portion of major economic
crime cases among all crime cases. Fraud
represents the largest single economic
crime accounting for 62% of total economic
crime cases in 1996. Appendix 2 shows thenumber of cases of fraud, embezzlement
and breach of trust involving damages of
W1 million ($700) or more for each year
from 1991 to 1996. With respect to fraud,embezzlement and breach of trust, thenumber of cases involving damages of W1
million ($700) or more grew almost fivefold in 1996 over 1991, with continued
increase in these cases from 54% in 1991
to 74% in 1996 for fraud, and from 44% in
1991 to 65% in 1996 for embezzlement.
These trends reflect the increasingly
complicated economic activities in a rapidly
growing economic environment have led to
growing dependence on lawsuits forsettlement of conflicts.
III. MAJOR CASES OF ECONOMIC
CRIMES
A. The Case of Yoolsan Group
This is one of the early cases of economic
crime that shocked the public due to thescale of the amount involved, at a time
when such economic crimes were a rareoccurrence. The Yoolsan Group started
business as a single company by the nameof Yoolsan Corporation, with a paid-in
capital of W1 million ($1,250) in 1975.
However, in three years the Group grew

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into a conglomerate with 14 affiliatedcompanies and a combined capital of W10
billion ($12.5 million), drawing theattention and admiration of the Korean
public.

Criminal Code. He had lent W23.6 billion($29.5 million) to the Yoolsan Groupknowing that it would be impossible toretrieve the loan because of the YoolsanGroup’s aggravated financial conditions.

In March 1979, the Seoul District
Prosecutor ’s Office obtained some
information that the Yoolsan Group had
been heavily dependent on curb market
loans since October 1978 and the scale oftotal debt had reached W150 billion ($187.5
million). The prosecution also heard that
the Yoolsan Group’s extremely shaky
financial structure was the result of thegroup chairman’s illegal business activities.

In the trials that followed, defendant
Shin Sunho was sentenced to 7 years
imprisonment, and the Seoul Bank
President, Hong was sentenced to 3 years
imprisonment. This case showed how
reckless expansion of business could harm
the national economy as well as ruining theowner and the business itself.

Around the end of March 1979, twoSpecial Investigation Divisions of Seoul
District Prosecutor’s Office initiated aninvestigation into the Yoolsan Group. They
finally proved that Chairman Shin Sunhoof the Yoolsan Group owned about 89% ofGroup companies’ shares worth W8.9
billion ($11.1 million), purchasing themwith the money he had illegally taken out
from the Group’s affiliated companies.
Prosecutors also proved that he also hadbought W260 million ($325,000) worth ofreal estate under his personal title with thecompany money he embezzled.
He had also embezzled $72,000 out of
employees’ overseas travel expenses andthe W160 million ($200,000) the company
had withheld for interest payments. He
also defaulted on payment of W22.7 billion($27.4 million) worth of cheques. The
prosecution arrested Chairman Shin
Sunho and indicted him on charges ofoccupational embezzlement in the
Criminal Code and violations of the Foreign
Exchange Control Act.
At the same time, the prosecution alsoarrested and indicted the president of Seoul
Bank, Hong Yoonsup, on charges ofoccupational breach of trust in the

B. The Case of Bills Fraud by Lee
and Jang
On June 2, 1982, the Special
Investigation Division of the Supreme
Prosecutor’s Office indicted defendants Lee
Chulhee and his wife, Jang Youngja, andother 29 defendants on fraud charges.
Lee Chulhee once served as deputy
director of the Agency for National Security
Planning. Jang Youngja used to introduce
herself as a relative of the then Korean
President Chun Doowhan. This intrepid
husband and wife conspired to make afortune by defrauding owners of large
corporations. Lee and Jang approachedcorporations which were in dire need ofworking capital, offering to provide themwith funds at a very low interest rate. In
return for the loans they asked
corporations to issue, as security,
promissory notes with combined face value
twice as much as the money they would
lend, deceitfully stating that such a process
was required to hide the source of theirfunds. As soon as Lee and Jang received
the promissory notes from corporations,they discounted them in the curb market
and took the difference between the loan
they made to the companies and the funds
they obtained from notes discounting. In
this way, Lee and Jang defrauded 6
corporations and swindled W168 billion

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RESOURCE MATERIAL SERIES No. 55($210.5 million) in total.
Lee and Jang case has been the biggest
fraud case since the foundation of the
Republic of Korea. This case dealt a heavy
blow on the morality of the newly
inaugurated 5th Republic in 1981. Lee
Chulhee and Jang Youngja were sentenced
to 15 years of imprisonment respectively
by the Seoul High Court. Their appeals to
the Supreme Court were rejected.
Later Jang Youngja was later releasedon parole and in 1994, she was again
arrested and indicted on charges ofdefrauding several company owners of
W7.7 billion ($9.6 million). Jang Youngja
was sentenced to 4 years imprisonment in
February 1994. She was released again
on August 15, 1998. This time she wasreleased on suspension of execution ofpenalty.
C. The Case of Myungsung
On September 2, 1983, the Special
Investigation Division of the Supreme
Prosecutor’s Office indicted Kim Chulho,
chairman of the Myungsung Group, who
had been arrested on charges of
embezzlement and tax evasion, and 37
other defendants.
With the inauguration of the 5th
Republic in 1981, the Myunsung (meaning‘Venus’ in Korean) Group was rising highin a very short period of time. Within acouple of years, it grew into a conglomerate
specializing in the leisure industry
including construction of condominiums allover Korea. Chairman Kim Chulho
pretended to have a strong connection witha close relative of the then President Chun.
He bribed bank officials and conspired withthem to embezzle W106.6 billion ($133.3
million) that depositors had placed withbanks. He also evaded various taxes
totalling W4.7 billion ($5.9 million) andbribed high ranking government officials

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to rezone the “Green Belt” area into acommercial area for construction of
condominiums. Kim Chulho dreamed ofmaking a quick fortune, with almost no
money of his own, by selling ownership ofa condominium when the real estatebusiness was booming in the early 1980’s.
Kim Chulho was sentenced to 15 years
imprisonment by the Seoul High Court in
April 1984. After 10 years in prison, he
was released on parole in March 1993.
D. The Case of Youngdong Scandal
On October 24, 1983, the Special
Investigation Division of the Supreme
Prosecutor’s Office indicted Lee Bokrae,c h a i r w o m a n o f t h e Yo u n g d o n g
Development Promotion Corporation, andLee Hunseung, president of Cho HungBank, and 28 other defendants on charges
of forgery of negotiable instruments,
negotiation of forged negotiable
instruments, occupational breach of trust,etc.
Youngdong Development Promotion
Corporation, which was run bychairwoman Lee Bokrae, had financial
difficulties. So she decided to borrowmoney in an irregular manner, conspiringwith her son, who was the president of thesame corporation, to bribe bank officials
and employees. They bribed the presidentof the Cho Hung Bank, the branch managerof the Bank’s Central Branch and several
other bank employees. Then, they attached
Cho Hung Bank’s forged guarantee to theirblank corporate promissory notes anddiscounted them in the curb market andshort-term money market. In this way,
they financed W101.9 billion ($127.4
million).
They also settled their corporate bills
illegally when the bills were presented to
the Cho Hung Bank for payment. When
there was not enough balance in110TH INTERNATIONAL TRAINING COURSE
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Youngdong Corporation’s accounts, thebribed officials and employees of the Cho
Hung Bank shored up balances byfabricating their bank book, as if they had
credited managers’ cheques issued by otherbanks. In this way, the president, branchmanager and employees of the Cho HungB a n k i l l e g a l l y s e t t l e d Yo u n g d o n g
Corporation’s bill totalling W47.1 billion($58.9 million).
This was somewhat of a bank corruption
case in that among the 30 indicted, 19 werebank personnel including a bank president
and a branch manager. This case shocked
the nation particularly in that the bankofficials and employees were major
accomplices in a significant fraudulent
economic crime. Citizen’s faith in banks
in general was shaken. In the trials that
followed, chairwoman Lee Bokrae wassentenced to 15 years imprisonment, thePresident of Cho Hung Bank, Lee
Hungseung to 4 years imprisonment, andthe bank branch manager, Go Gunho, to
12 years imprisonment.
The seriousness of these three big
economic scandals of the early years of the
1980’s prompted the 5th Republic to enact
new laws that could deter and punish
economic crimes more effectively. Thus, in
December 1983, the Act on the AggravatedPunishment, etc., of Specific Economic
Crimes was promulgated.
E. The Case of Hanbo Group
Chairman Chung, Taesoo
In December 1996, Hanbo Steel Co. Ltd.,the flagship of the 14th largest businessconglomerate in Korea, defaulted on
payment while constructing steel mills at
Tangjin, with excessive borrowings frombanks and other financial institutions
totalling W5.7 trillion ($7.1 billion).
The demise of the debt-ridden Hanbo
Steel worsened the troubles of Koreanbanks and other financial institutions and,
together with the collapse of Kia Motors
with a total debt of W9.3 trillion ($11.6
billion) in July 1997, played a critical rolein triggering the country’s financial crisis,
forcing Korea to turn to the IMF for a $58
billion loan in December 1997. Given thenegative impact of the Hanbo bankruptcy
and the alleged irregularities Chairman
Chung conducted in day-to-day
management, the Central Investigation
Division of the Supreme Prosecutor’s Officecommenced an investigation into this caseand revealed the wrongdoings of Hanbo
Group Chairman Chung as summarized
below:(a) He swindled W107.7 billion ($134.6
million) by discounting W111.6 billion($139.5 million) worth ofaccommodation bills with various
creditors during the period from
December 3, 1996 to January 18,
1997.
(b) He misappropriated a total of W108.9
billion ($136.1 million) from affiliatesof Hanbo Group on 24 occasions fromJanuary 1994 to December 1996 topurchase real estates under his
name.
(c) He forced Hanbo Credit Union Co.
Ltd., one of Hanbo Group’s affiliates,
to make loans totalling W43.2 billion($54 million) to Hanbo Steel Co. Ltd..
(d) He failed to honor checks totalling
W53.9 billion ($67.4 million) from
July 1995 to January 3, 1997.
(e) He offered a total of W400 million($0.5 million) each to Shin Kwangsik,
former president of Korea First Banka n d Wo o C h a n m o o k , f o r m e rpresident of Cho Hung Bank, in July
1996 in return for a huge amount ofloans they offered to the company
during their terms.
(f) He offered a total of W700 million($0.9 million) to Lee Chulsoo, who
was serving as president of Korea
First Bank from August 1994 to April

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RESOURCE MATERIAL SERIES No. 55
1996 in return for loans provided by
the bank.
(g) He handed over a total of W450
million ($0.6 million) to twopoliticians in the ruling andopposition parties from October 1995
to October 1996 asking them not totake the Hanbo Steel issue to the
National Assembly.
(h) He offered W200 million ($0.3
million) to Kim Woosuk, who wasserving as the Minister ofConstruction asking construction ofroad connecting Hanbo’s Tangjin
mills to the highway passing the mills
nearby.
Chung Taesoo was indicted on February
19, 1997 on the above noted criminal
charges, sentenced to a 15-year
imprisonment on December 16, 1997 andis currently serving his prison term.
Hanbo Chairman Chung, a former tax
official, harbored the naive dream ofmaking the world’s fifth largest steel
company. With only W90 billion ($112.5
million) in capital, he pushed for theconstruction of the steel plant allegedly
with support from those in power andpolitics. Initially, it was projected that thesteel plant project would cost W2.7 trillion($3.375 billion). Hanbo, however, pouredin W5.7 trillion ($7.125 billion) to complete
90% of the project by early 1997 apparently
due to unrealistic projections.
Hanbo Chairman Chung’s tragic end to
the debt-financed expansion strategy
taught the lesson that overly aggressive
business expansion, beyond financial
means, would result in a bankruptcy
during a period of business recession.
Businesses also realized the need for
restructuring aimed at improving financial
structure. For this, many business groups
have implemented business strategies
which are focused on streamlining by

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disposing of marginal or unprofitablebusiness lines and non-business purpose
real estate. Korean banks realized theimportance of credit decisions based on
assessment of the creditworthiness of aborrower or the feasibility of a project.
Several banks have already implemented
stricter credit approval procedures orintroduced new risk management
techniques to improve asset quality.
Mergers among banks were accelerated in
one financial reform effort. The scandal isalso likely to help sever corrupt andirregular links between politics andbusiness enterprises in the long run, as it
resulted in the arrest of several
congressmen, two bank presidents andeven the second son of former President
Y.S. Kim.
The government, for its part, introduced
a tighter credit control system for fear that
excessive loans to a single conglomerate
can threaten the lending bank’s survival
itself. Effective August 1, 1997, businessgroups with external debts of over W250
billion ($280 million) are prohibited fromborrowing loans in excess of 45% of a bank’s
shareholder’s equity. The scandal also
prompted the government to introduce fivecorporate reform guidelines for effective
implementation of the reform program
which include:(a) I m p r o v e m e n t o f c o r p o r a t etransparency:• Introduction of combined groupfinancial statements beginning fiscal
year 1999.
• Improvement of accounting practices
and full disclosure of financial
information.
• Appointment of outside boards of
directors by listed companies at least
one in 1998 and 25% of board
members by the end of 1999.
• Strengthening of minor shareholders’rights.
(b) Eliminate cross-payment guarantees

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with full clearance by the end of 1999.
(c) Dramatic improvement of financial
structure with lower financial leverage(debt to capital ratio) to below 2:1 by
the end of 2000.
(d) Streamline focus on core businesses
and cooperate with small/mediumsized companies.
(e) Strengthen legal liability of major
shareholders:• Major shareholders must take legal
responsibility for corporate failure.
• Major shareholders should makeevery effort to improve group company
financials even through thecontribution of personal assets.
• Remove the position of groupchairman and office of groupchairman.
• Laws have been revised to expedite
the bankruptcy proceedings and force
companies which have no possibilityof reviving to exit from the businessquickly.
F. The Case of Forgery and
Fraudulent Use of Listed
Companies’ Promissory Notes
In 1997, the second Special Investigation
Division of the Seoul District Prosecutor’s
Office conducted an investigation after
obtaining information that a substantial
amount of promissory notes, issued bycertain companies listed on the Korea Stock
Exchange, were offered to some financial
institutions and curb market dealers in
downtown Seoul for discounting in
September 1997. The prosecution foundout that six individuals forged anddiscounted seven promissory notes of six
listed companies with a combined facevalue of W3,070 million ($3.8 million), in
their attempt to forge and discountW23,380 million ($29.2 million) worth ofpromissory notes.
The investigation revealed that thesuspects swindled W326 millions ($0.4

million) by discounting only two of theseven forged promissory notes, and thenconspired to forge and sell national andpublic bonds (realizing that promissory
notes were no longer sellable sinceNovember 1997 when Korea was placed
under the IMF program). It was also
revealed that the suspects attempted toforge 17 promissory notes of nine large
companies with a combined face value of
W23,380 million ($29.2 million).
Subsequent to the findings three
individuals were indicted with physicaldetention and one was placed on thewanted list. This case also revealed that
new IMF-type economic crimes appear to
be looming near.
G. The Case of Smuggling Advanced
Technology for Semiconductor
Chips
In late January 1998, the Suwon District
Prosecutor’s Office obtained informationthat KSTC (Korea Semiconductor
Technology Company), established byformer researchers of Samsung Electronics
Co. Ltd., had been smuggling advanced
technology for semiconductor chips into aforeign country. Judging that this would
be a very critical crime which could weaken
the international competitiveness of
Korean semiconductor chips, which is oneof Korea’s strategic export items, theSuwon District Prosecution immediately
initiated an investigation into this case.
After months of full-scale investigation,
the prosecution proved that the former
researchers of Samsung Electronics Co.
Ltd. and LG Semiconductor Co. Ltd. hadestablished what they claimed to be
semiconductor venture firms, KSTC and
DESTEC (Dream of Engineer’s Technology)
for illicit purposes that they then lured
present and former researchers of
Samsung and LG to steal memory chip
manufacturing technology from theircompanies. Finally they sold the smuggled

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RESOURCE MATERIAL SERIES No. 55
technology with respect to 64M DRAM and
256M DRAM to NTC (Nan Ya Technology
Company) of Taiwan, which allegedly
promised officials of the two venture firms
kickbacks and research jobs in its
laboratory at huge salaries. The
prosecution also found that the smuggled
technology included about 800 items stolen
from Samsung and about 40 items stolen
from LG which were critical to the whole
manufacturing process including design,
fabrication and inspection of 64M DRAM.
The value of stolen technologies wasestimated at W70 billion ($50 million) interms of research and development
expenses, while the two semiconductor
manufacturers claimed that the value ofthe possible loss from the illegal outflow of
the chip manufacturing technology would
amount to W1,250 billion ($900 million).
On February 28, 1998, the Suwon
District Prosecutor’s Office prosecuted 20
defendants (including Kim Hyungik, aprincipal offender and managing directorof KSTC) on charges of violating the Act
on the Aggravated Punishment of Specific
Economic Crimes with respect to breach oftrust, occupational breach of trust, theft
and for breach of the Unfair Competition
Prevention Act.
In the trial that followed, the Suwon
District Court sentenced from four to two
and a half years’ actual imprisonment thefive principal defendants including Kim
Hyungik, and from three to two years’suspensed sentence to the rest of the fifteen
defendants. This case represented thebiggest industrial espionage case attracting
the attention of the government and the
public. This case also prompted theP r o s e c u t o r ’s O f f i c e t o r e c o m m e n dlegislation of the so-called Industrial
Espionage Act in order to prevent
recurrence of similar intellectual property
theft cases in Korea.

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H. The Case of Dongsuh Securities
Co. Ltd.
In February 1998, the Special
Investigation Division of the Seoul DistrictP r o s e c u t o r ’s O f f i c e i n i t i a t e d a n
investigation into the case of Dongsuh
Securities Co. Ltd., which became insolvent
due to illegal financial support of its
affiliated construction company which was
suffering financial crisis.
Dongsuh Securities Co. Ltd., an affiliate
of Kukdong Group, provided W144.2 billion($180.2 million) worth of financial support
to Kukje Construction Co. Ltd., anotheraffiliate of Kukdong Group, during theperiod of June to December 1997. This waswithout collateral, even though they werecognizant of the fact that the financiallytroubled company would not be able tohonor its obligation to Dongsuh when they
became due. Certain officials andemployees of Kukje Construction Co. Ltd.
illegally set aside W10.5 billion ($13.1
million) in a slush fund and embezzled
W4.5 billion ($5.6 million) for personal use,which gave rise to the financial difficultiesof the construction company.
As this was the first case where a Korean
financial institution defaulted on payment,
it led to the withdrawal of more than W300
billion ($375 million) by the depositors of
the securities firm, creating a ripple effecton the national economy and society. By
providing financial support totalling
W144.2 billion ($180.1 million) to its
affiliate, Dongsuh Securities Co. Ltd.
violated the Securities Exchange Act
Article 54 and the Standing Rule on
Financial Soundness of Securities
Companies Article 25. Both prohibit
securities companies from extending loans
and credit to their affiliates and individuals
identified as having a “special relationship”
with the lender. The company also failed
in its due diligence by extending credit to
the near-bankrupt construction company

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without collateral.
The prosecution conducted aninvestigation into this case in February
1998 based on the outcome of the Securities
Supervisory Board’s special examination ofDongsuh Securities Co. Ltd.. In May 1998,
Kim Yongsan (age 76), Chairman of
Kukdong Group, and Kim Kwangjong (61),Representative Director of Dongsuh
Securities Co. Ltd., were indicted without
detention on charges of violating the Act
on the Aggravated Punishment of Specific
Economic Crimes with respect to breach oftrust and the Securities Exchange Law.
Kim Sejung (42), Representative Directorof Kukje Construction Co., and Yoo
Chongwhan (55), Managing Director of
Kukje Construction Co. Ltd., were indictedwith physical detention on charges ofviolating the Act on the AggravatedPunishment of Specific Economic Crimes
with respect to embezzlement.
I. The Case of False Financial
Statements Produced by Shinwa
Group
In Early 1998, the Seoul District
Prosecutor’s Office initiated a probe of theallegation that a couple of Shinwa Groupaffiliates produced false financial
statements to make their status appear
better than it actually was. The two corecompanies of the seven Shinwa Groupaffiliates produced false financial
statements since 1995 in an attempt to gain
easy access to bank borrowings, and toprevent a fall in share prices of the twolisted companies. The debt ratio of thegroup affiliates including the twocompanies rose considerably since 1994 due
to loose management. Taehung Leather
Co. Ltd. for example, by means of window
dressing, increased sales for the first halfof 1997 from W27.9 billion ($34.9 million)
to W30.7 billion ($38.4 million); converting
the bottomline result from the net loss ofW400 million ($0.5 million) to net profit of

W8.8 billion ($11 million) and decreased theamount of total liabilities as of 6/30/97 from
W75.7 billion ($94.6 million) to W64.2
billion ($80.3 million).
In addition, Shinwa Co. Ltd., anothercore group company, cheated stock
investors by announcing that it concluded
a big sales contract. In fact, the new hightech "car location tracking system" did notsell well and had uncertain businessprospects. Based on the credit the company
obtained as a result of false financial andbusiness information, the company
borrowed W157.2 billion ($196.5 million)
from financial institutions by discounting
fake commercial bills.
On February 15, 1998, Lee Eunjo,
Shinwa Group Chairman, was indictedwith physical detention, and Huh Pilju,
Finance Director of Shinwa Co. and Chung,Sukhun, Finance Director of Taehung
Leather Co., Ltd. were indicted without
physical detention. Charges filed on thesethree suspects included violation of the Act
on the Aggravated Punishment of Specific
Economic Crimes with respect to fraud andbreach of trust, the Commercial Code, theAct on External Audit of Limited Liabilities
Companies, and the Securities ExchangeAct.
Occurrence of similar cases would be lesslikely in the future as one of the five major
guidelines of the Corporate Reform
Program has improved managerialtransparency through disclosure of detailed
financial information based oninternational accounting standards.
J. The Case of Irregularities
Relating to Real Estate TrustBusiness (Kyungsung Scandal)
In June 1998, the Special Investment
Division of the Seoul District Prosecutor’s
Office conducted an investigation into thecase of Kyungsung Scandal with respect to91

RESOURCE MATERIAL SERIES No. 55
irregular real estate trust business. Thiscase involves irregular financial support bycertain officials and employees of Korea
Real Estate Trust Co. Ltd., in collusion withlandowners, subcontractors andpoliticians. Such irregularities placed thereal estate trust company in financial
difficulties.
During the period from January 1996 to
February 1998 the Korea Real Estate Trust
Co. Ltd., in relation to the development
project of land owned by Kyungsung Co.
Ltd., committed irregularities by extending
credits to Kyungsung Co. Ltd. andKyungsung Construction Co. Ltd.. These
irregularities include issuance of payment
guarantees totalling W36.4 billion ($45.5
million), payment of W15.6 billion ($19.5
million) in advance without obtaining
collateral and extension of loans totalling
W20.4 billion ($25.5 million) based on
insufficient securities collateral worth only
W6.8 billion ($8.5 million).
Lee Jaekil (55), Kyungsung Group
Chairman, and Lee Jaekook (54), former
president of Korea Real Estate Trust Co.
Ltd., were indicated with physicaldetention on charge of violating the Act on
the Aggravated Punishment of Specific
Economic Crimes with respect to breach oftrust. With investigation still going on asof July 16, 1998, as many as 25 suspects
were indicted; 17 suspects with physicaldetention and 8 suspects without
detention. Included in the 17 arrestees was
Chung Daechul, Vice President of theruling party, National Congress for New
Politics, who was placed under arrest on
September 2, 1998 on the charge of taking
W30 million ($37,500) in bribes fromcertain officials and employees ofKyungsung Co. Ltd..

92

IV. MAJOR CONTROLSTRUCTURES FOR ECONOMIC
CRIMES
A. Legislation(i) Criminal Code (Act)Traditional personal property crimes in
the Criminal Code such as fraud,embezzlement and breach of trust of morethan a certain extent, could constituteeconomic crimes. Fraud, embezzlement,
occupational embezzlement, breach oftrust, occupational breach of trust, forgery
of currency and securities are punished by
the Criminal Code promulgated on
September 18, 1953. The penalty for fraud
is imprisonment for not more than ten
years, or fine not exceeding W20 million($14,200 at current exchange rate of$1:W1,400).
The penalties forembezzlement and breach of trust are
imprisonment for not more than five years
or by fine not exceeding W15 million($10,700), respectively. The penalties ofoccupational embezzlement andoccupational breach of trust isimprisonment for not more than ten years
or by fine not exceeding W30 million($21,400).
(ii) Act on the Aggravated Punishment ofSpecific Economic Crimes
Stunned by the enormous damage to thenational economy caused by the three big
economic crimes in the early 1980’s, the 5th
Republic, in order to deter recurrence ofeconomic crimes, promulgated on
December 31, 1983, the Act on the
Aggravated Punishment of Specific Crimes(hereafter referred to as the Act). The
major provisions of this Act against
economic crimes are as follows.
First, the Act expands the range of
economic crime according to the amount of
profits which have been acquired by fraud,embezzlement and breach of trust(traditionally personal property crimes). In

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
cases when the illegal profits acquired
through those crime exceed W500 million($625,000 at then prevailing exchange rateof $1:W800), offenders are not punished by
the Criminal Code but by this Act.
One of the most important means ofdeterrence of this Act is the aggravatedpunishment. In cases of fraud,embezzlement and breach of trust when theamount of profit obtained by those crime
exceeds W500 million (now $357,000) or
more, offenders shall be punished by
imprisonment for life or not less than five
years. There is no fine penalty. It is clearthat so long as a case of fraud,embezzlement and breach of trust falls
within this Act, it is an economic crime.
Second, this Act also expands theoffenders of economic crime. Traditionally,
according to the Criminal Code, the subjectof bribery used to be public officials or
mediators. However, the Act expands the
subject of bribery to officials or employees
of a financial institution. Any person who
promises or gives a bribe to them is also
punishable by this Act.
Third, any money or other benefits that
officials or employees of a financial
institution have illegally gained in violationof this Act shall be confiscated. In addition,anyone who is convicted of property crimes
under this Act, and officials or employees
of a financial institution who are convictedof bribery under this Act, may not be
employed by a related company for acertain period of time.
Since its promulgation, this Act has
played a major role in deterring, detecting
and punishing economic crimes. Together
with Real Name Financial System Orderof 1993, this Act is one of the mostimportant pieces of legislation to suppress
economic crime.

(iii) Real Name Financial Transaction
SystemIn connection with the suppression of
economic crime in Korea, another major
step was taken in 1993. On August 12,
former President, Kim Youngsam, issued
a Presidential Financial and Economic
Emergency Order on Real Name Financial
Transactions and the Protection ofConfidentiality. This Emergency Ordershocked the nation by its serious effect on
the national economy, as well as household
economies.
By this Emergency Order, a Real Name
Financial Transaction System has beeneffectuated. The causes of implementating
this Real Name System are traced back to
the case of Lee and Jang bank bills fraud
in 1982. In the wake of this case, the Chun
Doowhan administration enacted andpromulgated the Act Regarding Real Name
Financial Transactions in December 1982.
However, implementation of the core of thisAct, i.e. compulsory real name financialtransactions, had been delayed until theEmergency Order of 1993.
The essentials of effective Real Name
Financial Transactions are as follows:(a) Financial Institutions shall carry on
Financial Transactions with theircustomers under the real names ofcustomers. Here, “Real Name” shallmean names designated byPresidential Decree such as names
appearing in resident registration
books and tax registration
certificates.
(b) Regarding Financial Assets held inaccounts created before the effective
d a t e o f t h e O r d e r, F i n a n c i a l
Institutions shall, at the time of thefirst transaction after the effective
date, verify whether such Financial
Assets are held under the real namesof account holders.
(c) For Existing Financial Assets which

93

RESOURCE MATERIAL SERIES No. 55
have not been verified pursuant tothe above, or which have been
identified to be under non-real names
as a result of such verification,
financial institutions shall not allow
any payment, refunding, repayment,
repurchase, etc.
(d) Obligation to convert existing nonreal name assets to real name assets
within two month from the effective
date of the Order.
(e) Penalty for breach of real nameconversion Obligation:(1) Penalty rate ranging from 10% to
60% of the asset value dependingon the period from the effective
date of the Order (e.g., 10% up to
1 year, 20% from 1 to 2 years, 40%
from 3 to 4 years, 50% from 4 to 5
years, and 60% over 5 years).
(2) 90% of income tax to be imposedon the interest income anddividend income to be earned on
non-real name assets.
(f) Default Fine: Officials or employees
of a financial institution who violate
the provisions of real name financialtransactions shall be subject to adefault fine of not more than W5
million ($3,570).
Minor revisions have been made on theReal Name Financial Transaction System
Act on several occasions since December
1997 to avoid inconveniences in the dayto-day financial transactions, to remove
public concern on possible audit by tax
authorities on their financial transactions,and to induce non-real name funds into
certain industries.
The contribution of the Real Name
Financial Transaction System Act to thedetection of economic crimes has beenenormous. If it had not been for the realname system, the prosecution of the former
Presidents Roh Taewoo, Chun Doowhan
and the likes in November 1995 would not94

have been possible.
B. Investigative Structure(i) Prosecutor
The prosecutor is the supreme
investigative authority under theConstitution and the Criminal Procedure
Act in Korea. As long as investigations ofcrimes are concerned, both judicial police
and special judicial police are under thecontrol and supervision of a prosecutor.
The prosecution of a case is the sole
responsibility of a prosecutor.
The prosecution is comprised of three
offices with different hierarchies: District
Prosecutor’s Offices, High Prosecutor’s
Offices and the Supreme Prosecutor ’s
Office. Most District Prosecutor’s Offices
which have jurisdiction over provinces or
special cities have, respectively, several
Criminal Investigation Divisions and one
Special Investigation Division.
Criminal Investigation Divisions aremainly responsible for general criminalcases. One division among them is
exclusively assigned to take charge of
economic crimes. Prosecutors belonging to
the economic division are appointed
exclusively responsible for one specific areaof economic crime under the supervisionof a division-chief prosecutor. They carryout investigations in the specific area
assigned to them.
The Special Investigation Division isdesignated to independently investigate
major crimes which are deemed
inappropriate for judicial police to control.
Generally speaking, it is difficult forjudicial police to handle some kinds of
economic crime requiring specialized
knowledge and techniques, such as
analysis of account documents and tracingof bank transactions in investigation.
Thus, economic crime is one of the items
which the prosecutors of the Special

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
Investigation Division willingly handle in
Korea.
National confidence in the prosecution
system is very high in Korea. Thisconfidence tends to impose a remarkableburden on the prosecution in some
important cases. Whenever large scaleeconomic crimes or scandals are brought
to public attention, the public tend to ask
the prosecution to investigate and disclosethe entire picture of the case or scandal
within a short period of time. When a caseor scandal is related to a high-ranking
official or is viewed to be extremely
important, the Central Investigation
Division of the Supreme Prosecutor’s Officetends to investigate the case or scandal
directly.
For certain economic offenses,
investigation team personnel must havespecialized knowledge in order toeffectively review and analyze relevant
evidence. Therefore, Korea’s prosecution
frequently carries out investigations into
a given case with the cooperation of therelated expert organizations. For instance,in the event of tax crimes, bank loanrelated crimes, securities-related crimes
etc., the experts of the Tax Office, the Officeof Bank Supervision, or the Securities
Supervisory Board are temporarily
assigned to the prosecution investigationteam in order to help the prosecutors’
investigation.
Occasionally, the prosecution does notinvestigate a given case until the related
authorities inspect that case in advance.
In many cases, this method has proved tobe very effective. In most economic crimes,
the decisive clue is not easily available
because the critical evidence is alreadyconcealed or destroyed. This is why suchinvestigations will fail to reveal the entire
picture unless they are conducted in a very
sophisticated manner.

(ii) Judicial Police
Among the police force, judicial police areassigned to investigation of crimes. The
judicial police that are under the control
and supervision of a prosecutor arecomprised of police administrative officials,
superintendents, captains, lieutenants,
and patrolmen.
The Korean National Police also play animportant role in enforcing the economyrelated laws. In Korea, the police initiate
the investigation of most criminal cases
including economic crimes. However, sinceprosecutors have the authority to supervise
and instruct the police investigation under
the Criminal Procedure Act, the police
should report important cases toprosecutors and conduct investigation
under instruction of the prosecutor.
(iii)Special Judicial Police
The Chief Prosecutor of the District
Prosecutor’s Office may appoint special
judicial police officials among public
officials when investigations involve sucha r e a s a s f o r e s t r y, m a r i n e a f f a i r s ,monopolies, taxes, customs, military
investigation organization and otherspecial matters. The customs office did nothave the authority to investigate economic
crimes until 1990. In August 1990, thelegislature vested that office with theauthority to investigate customs-related
crimes within the area of each customs
office.
V. PROBLEMS IN SUPRESSINGECONOMIC CRIMES
A. Difficulty in Initiating
Investigation
Unlike other criminals, offenders of
economic crimes generally have strong
influence on those in power and politics.
The influence they buy brings them moremoney and in turn, greater funds forfurther influence, which brings more

95

RESOURCE MATERIAL SERIES No. 55
money to them. This vicious circle makes
it very difficult for investigators to detectand carry out investigations into economic
crimes.
For example, in the case of the Hanbo
Group Chairman, Chung Taesoo, Chungb r i b e d t h e t h e n - r u l i n g p a r t y ’s
Congressmen, Hong Ingil (W1 billion, or$1.25 million), Hwang Byungtae (W200
million, or $250,000), Chung Jaechal(W200 million), and then- opposition party
Congressman, Kwon Rogap (W200 million),and then-Minister of Construction Kim
Woosuk (W200 million). Other cases
introduced in this paper show similar
patterns.
B. Unfair Punishment System under
Criminal Code(i) Method of Aggravating Penalties
While working as a prosecutor for morethan twenty years, I have noticed criticalproblems with the way aggravatedpenalties are imposed on concurrent
crimes, and felt the strong need to rectify
the system. Under the Criminal Code,when concurrent crimes are adjudicated at
the same time, aggravated punishment
shall be imposed as follows:(a) In the event that the punishment
specified for the most severe crime isthe death penalty or imprisonment
for life or imprisonment without
prison labor for life, the punishment
available for the most severe crime
shall be imposed.
(b) In the event that punishments
specified for each crime are the samekind, other than the death penalty or
imprisonment for life or
imprisonment with prison labor forlife, the maximum term or maximum
amount for the most severe crime
shall be increased for one half thereof, but shall not exceed the total
maximum term or maximum amount96

of punishments specified for eachcrime. Besides, the Criminal Codealso stipulates that the term of
imprisonment shall be from one
month to fifteen years: provided, thatit may be extended twenty-five years
in case of aggravation of punishment.
These legal provisions, I believe, indirectly
serve to favor violations of crimes,
including economic crimes, rather thandeterring or suppressing them.
Let me take some examples. There isno death penalty for economic crimes.
Therefore, life imprisonment is the
maximum penalty for economic crimes.
Suppose an offender committed three
independent economic crimes which call for
legal penalty of life imprisonment, themaximum penalty for the offender will bejust one, not three, life imprisonment
terms. Economic crime offenders tend tohire the best lawyers their illegally earned
money can buy. Again, suppose that a judge
in charge wants to mitigate thepunishment for some reason, using their’s
discretionary mitigation authority under
the Criminal Code, a life imprisonment
term could be mitigated to imprisonment
for not less than seven years.
Suppose again that an offendercommitted more than two independent
frauds and the maximum penalty for eachfraud is ten years imprisonment. The
aggravated maximum punishment in thiscase will be 15 years imprisonment,
whether he or she committed two
independent frauds or one hundred
independent fraud crimes. Again the
maximum limit of the penalty systemallows an offender to benefit fromcommitting more crimes if he or she isdetermined to make a fortune out of
economic crime.

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS(ii) Problem with “Definite ImprisonmentTerm” System
Another problem related to the Criminal
Code is the unreasonableness in imposing
penalty terms under the “definite
imprisonment term” system. Allow me totake another example. W100 million($71,400 at current exchange rate of$1:W1,400) is a lot of money for mostordinary Koreans. They may have to savefor ten or twenty years to make that muchmoney. However, an offender who
defrauded W100 million ($71,400) or less,generally, is sentenced to only one year orless imprisonment with prison labor. Thislenient sentence, in many cases, motivate
average offenders to serve a one year termin prison rather than reimbursing W100
million to the victim, to be released on asuspension of execution of penalty, etc.
Based on the above “one year term per
W100 million” rule, 15 years of
imprisonment would be sentenced to those
who defrauded W1,500 million ($1.71
million).
While I believe that even one year
imprisonment is not enough for W100
million, in the Hanbo Group case Chung
Taesoo was sentenced to a 15-year
imprisonment for various charges
including fraud of W107.7 billion ($134.6
million at then prevailing exchange rateof $1:W800). If “one year term per W100
million” rule is to be applied, Chung
Taesoo’s maximum imprisonment term
should be 1,070 years. Also, the scope ofthe fraud money involved in the case was
big enough to warrant a life imprisonment
term under the Act on the AggravatedPunishment of Specific Economic Crimes.
Nevertheless, Chung Taesoo was sentenced
to only a 15 year term under the Act,
raising the value of Chung Taesoo’s one
year service in prison to as high as W7,180
million ($9.0 million). Here again, the moremoney an offender swindles, the moreadvantages, not disadvantages he or she

gets. The issue of such unfair punishment
under the Criminal Code has never beenraised in Korea before.
C. Too Generous Sentences
Keeping in mind what is presented
above, court sentences should be severe
enough to deter offenders from committing
crimes or repeating crimes. This isparticularly true for economic crimes,
considering the astronomical amount ofdamages inflicted upon individuals,
societies, and the national economy.
However, there has been a tendency in
Korea that sentences have been too
generous to deter crimes. Especially inmost economic crime cases, defendants
have the best lawyers helping them toreduce sentences. Furthermore,defendants get more and more favorable
sentences as they appeal to the High
Courts and the Supreme Court.
D. Problems with Execution of
Punishment
As I have presented, it is not easy forthe prosecution to investigate and toprosecute economic offenders, to have themsentenced to actual imprisonment. It istrue that effectiveness of criminal
punishment comes from strict execution ofpunishment as sentenced. From time totime, however, some of the convicted
offenders of economic crimes or related
crimes have been released either on paroleor suspension of execution of punishment
or amnesty.
This has been seen rather frequently incases where politicians or high ranking
government officials were involved. For
example, in the Hanbo Group case,
Congressman Chung Jaechul, who had
been sentenced to 3 years imprisonment
with 4 years suspension of execution ofsentence, was rehabilitated on August 15,
1998. Congressman Kwon Rogap, who had
been sentenced to 5 years imprisonment,

97

RESOURCE MATERIAL SERIES No. 55
was released on special amnesty on thesame day. Also Congressman Hong Ingil
was released on suspension of execution of
6 years imprisonment on January 15, 1998,
although he was arrested again on August25, 1998 on a charge of accepting bribes ofW4,500 million ($5.625 million at thenprevailing exchange rate of $1:W800) froma conglomerate called Chunggu. Frequent
use of the early release of prisoners
discourages not only the prosecution but
also most law-abiding public and weakens
enforcement of the laws.
E. Fugitive Offenders
Unlike other offenders, those of economic
crimes have tended to flee easily to foreigncountries with huge amounts of money
illegally taken. Prior to the partial revisionof the Criminal Procedure Code on
December 29, 1995, fugitive offenders could
enjoy two things. First, they were able toescape justice. Second, the limitations
period for prosecution proceeds towards
expiration during their stay in foreigncountries. However, under the amended
Criminal Procedure Code, a fugitive can nolonger enjoy the second advantage, because
the limitations period shall be suspended
during the period of his or her stay out of
the country. For Korean offenders of
economic crimes, Japan and the UnitedStates have been the most popular hiding
places.
F. Other Problems
There are some other problems that havebeen generally recognized by otherprosecutors, researchers, law professors
and scholars in Korea as obstacles toeffective suppression of economic crimes.
These problems include: lack of specialized
knowledge in economic crimes on the partof general investigators and judicial police;difficulties in collecting evidence andmaintaining prosecution in trial ; andloopholes in the local law that easily allow
offenders of economic crime to start98

business again by using somebody else’s
name.
VI. EFFECTIVE
COUNTERMEASURES AGAINSTECONOMIC CRIME
A. Continued Efforts to Remain
Independent of Political
Influences.
The foremost thing to overcome
difficulties in initiating investigation into
economic crimes is to protect theprosecutor’s office from political influence.
It is true that, notwithstanding the highcredibility of the prosecutor’s office in
Korea, the prosecution has occassionallybeen criticized for being influenced bypolitics. Ironically, these criticisms comemainly from the politicans according totheir political interests at stake.
The Korean prosecution has achieved
remarkable progress in terms of
independence. The prosecution
investigated and indicted two former
Korean Presidents with arrests in
November 1995. The prosecution alsoarrested and prosecuted then ruling
President Kim Youngsam’s son, Hyunchul,with charges of tax evasion and accepting
money in connection with a mediation in
1997.
The second most important thing is toprovide specialized training toinvestigators and to consolidate related
investigative forces. Investigators should
be given an opportunity to learn generalknowledge in accounting, economics,
foreign trade, business administration,
economic law, and so on. They must be
equipped with the ability to collect andanalyze all of the proof and informationneeded to investigate economic crimes.
Presently in Korea, the Institute of
Research and Training for Legal Affairs
under the Ministry of Justice has been

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
providing both prosecutors and generalinvestigators with training programs in theeconomic crime area.
To effectively suppress these economic
crimes, it is necessary to consolidate
various organizations and task forces. By
doing so, investigators are able to actively
cope with changes in criminal trends andalso build up their specialized techniquesof investigation. Principal District
Prosecutor’s Offices in Korea have special
task forces exclusively responsible for tax
crimes, tariff crimes, and infringements ofintellectual property. Those task forces arecomposed of prosecutors, judicial police,
and expert personnel of the relatedorganizations.
In addition, integration of judicial police,
apart from administrative police, with theProsecutor’s Office should be considered tomaximize the deterrence of crimes ingeneral.
B. Revision of Punishment Systemin the Criminal CodeIn order to effectively suppress and deter
criminal offenses, as well as economic
crimes, we need to revise the current
systems with regard to aggravation ofpunishment and definite term of
imprisonment. Therefore, I strongly
recommend revision of the Korean
Criminal Code as follows:(i) The aggravation of punishment on
concurrent crimes should be revisedso as to add all the penalties
a r i t h m e t i c a l l y, w h e n e v e r
independent crimes are committed.
For an example, if an offendercommitted one fraud, the maximum
penalty would be less than 10 years
imprisonment as the Criminal Codeprescribes. If an offender committed
two fraud crimes, the maximum
aggravated penalty would be 20 years

imprisonment. If ten fraud crimes
were committed, the maximum
aggravated penalty would be 100
years imprisonment, and so on.
Under the system, I believe that only
few offenders would dare to commit
as many crimes as current
opportunities allow.
(ii) In addition, the present system ofdefinite imprisonment term should be
revised for effective deterrence ofeconomic crimes of an astronomical
scale and, ultimately, for guaranteeof the people’s constitutional right ofequality before the law. Specifically,
imprisonment terms in the case of
economic crimes should increase inproportion to the amount of damages
that an offender had inflicted on a
victim. Suppose $100,000 damage isapproximate to one-year
imprisonment. If a swindler
defrauded $100,000, the maximum
term of imprisonment would be one
year. If a swindler defrauded $1
million, the maximum term of
imprisonment would be 10 years. If
any person were to swindle $134
million, like defendant Chung in the
Hanbo case, he or she would have toserve 1,340 years of imprisonment.
C. Establishing of Sentencing
Guidelines
The Constitution of Korea provides thatjudges shall rule independently according
to their conscience and in conformity with
the Constitution and Acts. However, thisprovision does not necessarily mean
approval of different sentences on similarcases by the same judge, or quite different
sentences on similar cases by different
judges. In order to avoid such unfairness
and inconsistencies, something like theU.S. Sentencing Guidelines needs to beestablished.

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RESOURCE MATERIAL SERIES No. 55
D. Restraint on Frequent Use of
Parole, Amnesty, etc.
If execution of punishment were shaken,
it would shake the law and order which are
the foundation of a country. Therefore,
release of convicts based on parole,suspension of execution of punishment oramnesty should be exercised in a fair andimpartial manner or, if possible, should be
avoided.
E. Better International Cooperation
Regarding Extradition
I am confident that no lawyers in theworld are against extradition. All lawyers
would agree that no country should give asanctuary or safe haven to criminals. To
make a prosperous world without crime, it
is urgent for all countries in the world toshare the consensus that crimes, likepoverty and disease, are common enemiesof mankind.
In connection with extradition, one goodway is to conclude extradition treaties withas many countries as possible. Concluding
regional extradition treaties seems to be abetter solution. However, entering into
treaties is a time consuming process. Korea
has tried to conclude extradition treaties
with the United States and Japan forseveral years. Korea, was only successful
in concluding an extradition treaty with the
U n i t e d S t a t e s t h i s y e a r, w i t h i t s
enforcement is still reserved, pending
ratification of the treaty by the twocountries.
Considering the time consuming process
of extradition, not to mention urgent needfor it, it would be beneficial for every
country to incorporate the principle ofreciprocity with respect to extradition inits domestic law. This would enable better
cooperation in providing extradition
between countries that have no extradition
treaty.

100VII. CONCLUSION
I believe the proposition “where there isa society, there is law” very well symbolizes
relations between people and law. If I wereallowed, it could be paraphrased as “where
there is a society (or people), there is crime.”
There always exist law and crime in thesociety we live in.
As I have presented so far, Korea has
seen a lot of large scale economic crimes
that have not only inflicted enormous
damage on the national economy, but also
discouraged and even frustrated ordinary
citizens. However, the prosecutor’s officein Korea, with assistance from judicial
police and other economy-related special
judicial police, has been successful incoping with those economic crimes.
So long as man has a desire to make afortune daring to break laws, it will be hard
to make a prosperous society without
crime. However, if we were better preparedto suppress economic crimes, we could
deter economic crimes to a considerable
degree and make better countries to live
in. In this sense, the role of law
enforcement officers is crucial to building
such good systems. Their important role
can not be emphasized too greatly.

110TH INTERNATIONAL TRAINING COURSE
VISITING EXPERTS’ PAPERS
APPENDIX I
MAJOR ECONOMIC CRIME CASESVIOLATIONS OF MAJOR ECONOMY-RELATED LAWS
Violation of

Year

1991

1992

1993

1994

1995

1996

Construction Business Act
996
1,372
933
Measure Act
784
1,004
343
39
3
High-Pressure Gas Safety Control Act
51
58
78
170
Quality Control of Manufactured Goods
274
281
302
118
4
Act
336
243
998
374
556
439
Customs Duties Act
Enforcement Decree of the State
55
86
73
Properties Act
Act on Distribution and Price Stabilization
77
16
31
of Agricultural and Fishery Products
118
10
16
Agricultures Cooperatives Act
Act on Government Monopoly of Tobacco
190
163
216
358
882
843
Sales
Price Stabilization and Fare Trade Act
21
Unfair Competition Prevention Act
203
249
336
624
668
373
36,328 48,760 55,834 85,957 104,940 84,166
Illegal Cheque Control Act
472
1,023
Trademark Act
33
28
29
Mutual Savings Company Act
Petroleum Business Act
75
71
102
Fisheries Act
1,910
1,802
2,191
2,667
2,708
2,203
Decree on the Preservation of Marine
1,158
1,577
1,499
Resources
144
157
148
Utility Model Act
Grain Management Act
63
Energy Use Rationalization Act
166
133
291
220
130
208
Foreign Exchange Control Act
606
935
682
1,547
664
421
Crimes with regard to Securities, Posts,
576
905
1,168
1,634
1,817
1,841
Stamps
222
233
204
Design Act
Electric Appliances Safety Control Act
171
460
379
358
284
153
Punishment of Tax Evaders Act
9
71
292
961
380
603
Heavy Vehicles Act
4,891
6,908
935
15
8
Securities and Exchange Act
31
45
41
56
82
114
37
10
18
Crimes with regard to Currency
Act on Aggravated Punishment, etc. of
9,849 11,272 15,852
653
697
725
Specific Economic Crimes
Patent Act
50
41
60
Fraud
51,100 72,640 97,854 132,537 170,613 200,879
Embezzlement
13,346 16,789 19,120 21,976 23,836 24,194
2,732
3,200
4,009
4,829
4,693
5,036
Breach of Trust
118,771 164,352 207,912 258,841 316,614 325,416
Total% of Total Crime Cases
9.6
13.2
15.3
18.8
22.6
21.8
* Source: “Analysis of Crimes” published by Korea’s Supreme Prosecutor’s Office101

RESOURCE MATERIAL SERIES No. 55
APPENDIX IINUMBER OF CASES OF FRAUD, EMBEZZLEMENT, BREACH OF TRUSTINVOLVING DAMAGES OF W1 MILLION ($700) OR MORE
Name

Year

Fraud
Embezzlement
Breach of Trust
Total% of Total Crimes

1991

1992

1993

1994

1995

1996

27,517(53.8)
5,844(43.8)
1,277(46.7)
34,6382.840,369(55.6)
7,860(46.8)
1,519(47.5)
49,748
4.0

57,566(58.8)
9,454(49.4)
2,024(50.5)
69,044
5.

96,792(72.8)
13,759(62.3)
3,158(64.4)
113,7098.3

130,023(76.3)
15,496(65.0)
3,268(67.4)
148,698
10.6

149,741(74.4)
15,755(64.8)
3,179(63,7)
168,764
11.3* Numbers in parentheses represent the percentage of cases involving damages of W1 million ($700) or
more, to total cases for each type.
**Source: “White Paper on Crime” published by the Institute of Research and Training for Legal Affairs,
Ministry of Justice.

102