International Fraud & Asset Tracing 2024 Comparisons

The general characteristics of fraud claims in Korea can be broadly categorised into both criminal claims and civil claims. The main reason for this broad categorisation is that the concept of fraud is not specific to criminal law but can also entangle civil claims.

From the Perspective of Criminal Claims

Fraud is defined as a crime in which a person deceives the other party with the wrongful intention to obtain property gains. According to Article 347 of the Criminal Act, the crime of fraud is stipulated as follows: a person who deceives another party to receive property or property gains shall be punished by imprisonment for not more than ten years, or by a fine not exceeding KRW20 million. The main factors that can constitute fraud under criminal law include:

• specific intent to commit fraud;
• deception;
• an act of disposition; and
• causation.

The act of deception can involve omission or non-action that is required by law or other regulations in certain situations, in addition to an aggressive act of making false statements. Fraud claims can include various kinds of situations and business transactions: for example, excessive exaggeration and false advertisement can be categorised as enabling a fraud claim based on Korean law. It is said that some exaggeration in product promotion and advertisement lacks deception as long as it can be acknowledged in light of good faith and the practice of general commerce. However, in the event of a false notification in a way that is reprehensible in light of good faith, it goes beyond the limits of exaggeration and false advertising, and can constitute a deceptive act of fraud (Supreme Court 97do1561 Decision). This Supreme Court case was the first case in Korea that accepted a fraud claim regarding excessive exaggeration in product advertisement.

The making of corrupt payments to public officers or the personnel of financial institutions can also constitute another violation of a special act, like the Foreign Corrupt Practices Act in the USA.

From the Perspective of Civil Claims

In terms of civil claims, fraud can generally be the triggering point of a tort claim. The declaration of expression caused by a fraudulent act or omission by the other party who had intent to commit fraud can be cancelled, or be the triggering point of revocation of a former declaration. Also, the party who has been deceived by the other party’s fraudulent acts can file a civil claim arguing compensation in damages rather than arguing for cancellation or revocation of former transactions. Fraud can lead to claims for damages due to breach of contract in addition to claims for damages due to tort. When a fraud claim is involved, the claimant typically uses both a criminal claim and civil claim.

The So-Called Kim Young-Ran Act

From the perspective of criminal law in Korea, receipt of a bribe can constitute a serious violation of the Criminal Act in addition to the so-called Kim Young-ran Act, which prohibits a person from providing a gift or benefit beyond a certain amount of money to a public officer, or someone with a similar position. This Act is named after the former Supreme Court justice of Korea who had proposed such a regulation in order to prevent widely prevalent acts of giving and taking gifts in the so-called Gap-Eul relationship in Korea. The coverage can extend to gifts or benefits that are not related to a benefit in return, that is, the typical character of a bribe; therefore, the aforementioned act can cover broad areas beyond the typical coverage of bribery.

Special Regulations on Employees of Financial Institutions

If an employee of a financial institution accepts, demands or promises to receive money, valuables or other benefits in connection with their duties, or if they provide such to a third party, they can be punished pursuant to the Act on the Aggravated Punishment of Specific Economic Crimes, etc. An example of where this provision applies is when a bank employee receives money in exchange for a convenience during the bank loan process. The law requires financial institutions to have integrity of an equivalent standard to public officials.

However, there has been some controversy over whether it is correct to regard the duties of employees of financial institutions as the same as those of public officials, and whether it is reasonable to treat employees of financial institutions differently from employees of other private companies.

Other Causes of Action

From the perspective of civil law, bribery can be one of the factors that constitutes a tort claim against the person who has provided or received a bribe, either directly or through their agent. From the perspective of administrative law, the act of giving and taking a bribe can constitute a relevant violation of government procurement acts, which can extend to sanctions such as prevention of future participation in governmental bid procedures. In accordance with government procurement acts, a person who has committed a fraudulent act shall not be entitled to participate in a bid for no more than two years, or a penalty surcharge can be imposed in lieu of it. Recently, cases of being sanctioned by the Multilateral Banks for committing fraud in bidding processes have emerged; this is a concern for Korean companies as the Multilateral Banks’ sanctions are very strict in terms of the sanction period and conditions for relief.

The Illegality of Assistance or Facilitation of Fraudulent Acts

From a criminal law perspective, the acts of assisting or facilitating the fraudulent acts of another can constitute criminal violations such as conspiracy or aiding/abetting of another’s criminal acts, depending on the magnitude of assistance or facilitation. There is not yet a clear line dividing conspiracy and aiding/abetting depending on specific situations; however, any kind of assistance or facilitation of another’s fraudulent acts can be punished under the criminal law.

Additionally, fraudulently obtained assets can be seized by criminal investigative authorities and confiscated, depending upon the court’s decision. Acquisition in the crime of acquiring stolen property means acquiring the right to dispose of the stolen property, in effect by taking possession of the stolen property.

Bank Account Transfer and Withdrawal Cases

The Korean Supreme Court held that “as the fraudulent act of the main criminal is terminated when the defendant receives money from the victim without transferring it to the principal offender, even if the accused later withdraws the money from the savings account, it is only the result of requesting the bank to return the deposit as the holder of account, and therefore the accused act of withdrawal cannot be punished as a separate crime of acquiring stolen property” (Supreme Court 2010do6256 Decision). It can be concluded that, in order to be a separate crime differentiated from the main crime, there should be another violation in terms of acquiring stolen property.

Degree of the Recognition of Stolen Goods

Recognition of stolen goods does not require definitive recognition, but it is sufficient to have a conscious negligence to the extent of suspecting that it may be a stolen object. In a general transaction, if there are any suspicions as to whether the item is stolen – for example, if it is an expensive luxury item without a certificate or if it is excessively cheap compared to the market price – then it may be punished as acquiring stolen property.

In terms of civil law, the acts of assistance or facilitation of another’s fraudulent acts can constitute a tort claim, and the person who assisted or facilitated another’s fraudulent acts can be jointly and severally liable to compensate in damages.

The Korean Supreme Court held that “if the holder of the securities account transfers the account while recognizing the crime of the person who submitted the order for market manipulation, it may constitute an act of aiding and abetting the act of carrying out market manipulation” (Supreme Court 2007do877 Decision).

Limitation Periods and Preparation of a Civil Claim

The limitation periods of a tort claim in Korea are three years from the date of recognition of the illegal acts and damage amounts, or ten years from the date of the occurrence of the illegal acts. From a criminal perspective, the limitation period depends on the maximum possible sentence period for each specific violation. The criminal limitation period for fraud is ten years, and, if the perpetrator fled abroad for the purpose of avoiding punishment, the statute of limitations regarding prosecution is suspended during the avoidance period, beginning again the moment they return to Korea.

Typically, the victim of fraud files a criminal complaint first, and waits for the result of the investigation before preparing a civil complaint against the perpetrators. However, sometimes investigating criminal matters can take a long time, especially in high-profile cases; therefore, it is important not to miss the minimum three-year limitation period in preparation for tort claim filing.

Cancellation of a Contract due to Fraud Generally

Misrepresentation of specific facts about important matters in a transaction, in a way that is reprehensible in light of the principle of good faith, is evaluated as illegal defrauding. Additionally, the causal relationship between the illegal deception and the conclusion of the contract is deemed to exist where, if there was no deception, the contract could not be concluded or not be concluded under the same conditions. In that case, the contract can be cancelled by fraudulent expression of intention.

Pursuant to Article 110(2) of the Civil Act, the declaration of expression transferring interests caused by a fraudulent act or omission by the other party can be cancelled or revoked; however, it can be restricted when there is a bona fide third-party beneficiary who has a legitimate interest in the transferred property. If a contract can be cancelled due to fraud, it becomes void retroactively; therefore, the profits obtained by the parties shall be returned as unjust gains based on the law.

Creditor’s Right of Revocation

Pursuant to Article 406 of the Civil Act, a claimant can seek the recovery of property when the debtor intentionally transferred their interest knowing this transfer may harm their creditors. However, they can also be restricted when there is a bona fide third-party beneficiary or the person who purchased the property from the vendor had no knowledge of the fraudulent acts. In that case, the claimant cannot recover the misappropriated property directly from the current title owner; however, the claimant can request the return of the sale price from the perpetrator, which is a sort of unjust enrichment concept recognised in the common law system.

Even if the proceeds of fraud are invested successfully, the claimant can only request the return of the sale price; however, they cannot request the return of the total proceeds invested. Also, there is a limitation period of one year from the date of recognition of the fraud, or five years from the date of the occurrence of the fraudulent acts.

Fraudulent Transactions of Real Estate With a Mortgage

If a transaction related to real estate falls under a fraudulent act, in principle, the fraudulent act must be cancelled, and an order to restore the real estate itself, such as cancellation of the registration of transfer of ownership, can be ordered. However, in the case of fraudulent transactions of the real estate on which a mortgage has been set, the Korean Supreme Court has held that fraudulent acts are established only within the range of the remaining amount after deducting the amount of the secured claims of the mortgage from the value of the real estate (Supreme Court 97da6711 Decision). According to this decision, the creditor cannot request the whole cancellation of title registration but can only request the return of the remaining amount.

There is no pre-action conduct rule in relation to fraud claims in Korea. Typically, the victim of fraud initially files a criminal complaint, and when the case is charged by the prosecutor’s officer through various kinds of investigation, the claimant can then choose whether it should go to a civil court or seek an alternative dispute resolution procedure such as mediation, etc.

Application for Preliminary Measures

Typically, the victim of fraud can prevent a debtor defendant from transferring or dissipating assets by filing an application for preliminary measures. Basically, there are two types of preliminary measures. If the creditor has a monetary claim against the defendant, the creditor can file an application for a preliminary attachment order on a specific asset owned by the defendant debtor. The target should be specific assets, so this may be a bank account, receivables, leasehold deposit or real estate in the name of the debtor defendant.

If the creditor does not have a monetary claim but has a specific right provoked by a fraudulent act (which, for example, may be the right to transfer the title on the real estate), the creditor can file an application for a preliminary injunction order preventing the debtor from transferring the assets. In addition to the preliminary injunction for prohibition of disposition as previously described, an application for preliminary injunction that determines a temporary status is also possible.

The Relevant Court Fees

The relevant court fees include a stamp fee and service fee, which are a relatively small amount compared to the fees required for filing a main lawsuit and are not geared towards the claim amount. However, the creditor is required to pay the deposit amount according to the court’s order, which is proportional to the claim amount. The deposit amount depends on both the claim amount and the assets to be attached or injuncted.

Typically, the deposit amount ranges from a tenth to two fifths of the claim amount, and the court can ask the creditor to deposit cash or to submit an insurance policy that guarantees repayment of the deposit amount. When the creditor needs to attach to the bank account in the name of a debtor, the court generally stipulates a deposit of 40% of the claim amount, half of which is payable as cash and the other half as a payment guarantee. There is no special rule or standard on how much an amount of money or bond should be deposited. It depends on the judge and is determined case by case.

Sanctions for Non-compliance by the Defendant

If the defendant does not follow the court’s freezing order, the creditor can disregard the former disposition by the defendant. For example, if the creditor has received a preliminary injunction order from the court prohibiting the sale of specific property in the name of the defendant, and the defendant has tried to sell the property to a third party, the creditor can argue that there is no title transfer between the defendant and the third party; and if the creditor finally wins the main lawsuit against the defendant, they can enforce on that asset even though the title has already been transferred to the third party.

If the debtor disposes of the property to a third party after the registration of the provisional prohibition of disposition is made, the act of disposition in violation of the provisional measure is effective between the debtor and the third party; however, they cannot oppose provisional measures in favour of the creditor (Supreme Court 2000da32417 Decision). In Korea, this is called the relative effect of preliminary injunction, because the debtor cannot argue against the effectiveness of transfer to the creditor.

Application for Asset Disclosure

Pursuant to Article 61 of the Civil Enforcement Act, a creditor who has received a final enforceable court decision requesting the defendant to pay a certain amount of money can file an application with the court requiring the defendant to disclose their assets (held in the name of the defendant). Without the final court’s decision, the creditor cannot ask the court to require the debtor to disclose asset information in advance.

After reviewing the application for asset disclosure, the court can issue an order requiring the defendant to disclose asset lists, including all positive and negative assets, by a specified date. Unless the debtor files an objection to the court order within one week after the service date, the court order will be finalised; and the court appoints a hearing date, requiring the defendant to attend the hearing and submit the asset lists.

In the asset lists, the defendant must submit information on:

• paid transfer of real estate within one year;
• paid transfer of property other than real estate to their relatives within one year; and
• any gift excluding ceremonial gifts within two years before service of the court’s order.

Sanctions for Non-compliance of Asset Disclosure

If the defendant does not follow the court’s order in this regard, there are sanctions such as being detained for not longer than 20 days. Additionally, the creditor can ask the court to search for or screen assets in the name of the defendant through financial institutions, governmental organisations, etc. The creditor does not have to provide a deposit.

“Preservation of evidence” is a method of investigating evidence to be used to admit the facts in advance before or during litigation. Some commentators argue that it is desirable to operate it flexibly so that it can be used as a pretrial evidence collection system under Korean law, which does not recognise a pretrial discovery system.

A party who wants to preserve important evidence before filing a civil claim can ask the court to preserve this evidence by filing an application for evidence preservation. In this application, the applicant is required to explain why evidence preservation is urgent and necessary before filing a claim. If evidence is not investigated in advance, there must be circumstances in which it will be difficult to use the evidence later.

The evidence requested for preservation can include witness examination or other documents or digital files that can be easily contaminated. In the case of CCTV or communications data, the retention period is set at several months, so if it is not secured in advance in the investigation procedure, it may be difficult to secure it in subsequent procedures. However, a party cannot conduct a physical search of documents at the defendant’s residence or place of business directly, even if the court has issued a preservation decision.

It is up to the court whether to accept this kind of application, and the court’s fee forms part of future litigation costs.

Application for Document Production

Korean courts still do not recognise the discovery system widely used in the US legal system, and the Korean Bar Association is currently researching the adoption of such a discovery system. Typically, application for document production is used in the Korean legal system. A party who wants to obtain documents from a third party files an application for document production with the court and, pursuant to Article 345 of the Civil Procedure Act, the party should clarify the reason for document production. Then, the court decides whether to issue an order based on the application requesting document production.

However, unlike with the adversely affected party, a third party is not required to submit requested documents and there is no sanction for not disclosing requested documents. This procedure is only available during the main lawsuit, and is generally not permitted before the commencement of proceedings unless there is necessity for preserving important evidence.

Recently, in cases filed abroad, when relevant evidence exists in Korea, there are instances where domestic courts are requested to co-operate in the investigation of evidence in accordance with the Hague Evidence Convention.

Request for Information

In order to prove specific facts during litigation, the method of request for information to a third party is also widely used in Korea. A party who wants to use it should file a request for information form with the court, specifying the reason for filing the request. Similar to a document production request, a request for information to a third party issued by the court does not have a mandatory effect on the third party; therefore, even if the third party does not reply to the request, there is no specified sanction.

Cases Where an Ex Parte Hearing is Permitted

An ex parte hearing is only possible in some provisional measures in Korea. For example, a preliminary attachment order can be issued without a hearing based on the application and supporting evidence submitted by the creditor, and then the order will be served on the debtor and any related third party. Additionally, some preliminary injunction orders to preserve present conditions can be issued without a hearing procedure. Typically, the court requests that the claimant deposit cash or a payment guarantee policy in order to compensate for the plausible damages of the intended defendant.

The debtor may file an objection with the court against the preliminary attachment order or preliminary injunction order made without a hearing, and can apply for re-examination by opening another hearing.

For preliminary injunction that determines a temporary status, a hearing date is generally designated because it has a huge impact on the person concerned.

Based on the Criminal Victim Protection Act, victims of fraud can seek redress against the perpetrator through a criminal mediation procedure. However, most victims of fraud file a separate tort claim against the perpetrator during or concurrently with the criminal procedure. Also, criminal prosecution investigation does not delay the progression of a parallel civil claim.

It is up to the judge whether or not to wait and see regarding the result through criminal prosecution or a criminal hearing, and generally civil court judges have a tendency to wait for any criminal result before deciding the civil claim case.

Facts and evidence admitted in the relevant criminal cases are admissible in civil cases unless there are special circumstances to rule them out.

Default Judgment

There is a sort of default judgment procedure in Korea where a defendant does not submit an answer within 30 days after the service date of complaint; however, it is up to the judge whether the court renders a default judgment or not. Generally, the judge waits for the filing of the answer, and, even where the default judgment date is appointed, if the defendant files an answer before the designated judgment date, the civil procedure will resume without the default judgment.

Application for a Payment Order

If the claimant does not want a full trial, then there is the option of application for a payment order, which is a simple litigation procedure through the court’s payment order. When the claimant files an application for a payment order with some supporting evidence with the court, the court reviews the application and issues a payment order requesting the debtor to pay the claim amount without further requesting additional evidence. The debtor has the option to accept the payment order served, or to file an objection within two weeks after the service date of the payment order.

If the debtor accepts the payment order and does not file an objection within two weeks, the payment order will be final and enforceable; therefore, the creditor can enforce on the debtor’s assets. However, if the debtor files an objection, there will be a full trial hearing. This is a simple and expedited procedure to get the court’s final and enforceable order with a small amount of court fees payable, and is recommended for a lot of foreign entities that want to collect unpaid receivables from a Korean debtor through expedited procedures.

There is no special rule or procedure for pleading fraud in Korea, and there is no difference between handling a fraud claim and other causes of action.

In general, it is not possible to bring a civil claim with unknown fraudsters, mainly because the court needs to serve the civil complaint to the designated address in the complaint. It is permissible to add another defendant or to change the name of the defendant during the pending procedure, provided that it is certain that the plaintiff designated the wrong name of the defendant or made a mistake in filing preparation.

However, it is not impossible to bring a criminal claim with unknown fraudsters. Contrary to a civil claim, it is up to the relevant investigation authorities to investigate criminal matters.

It is up to the judge whether to compel witnesses to attend an examination hearing. If a witness does not attend the hearing, and unless they have the right to refuse to testify even where they have been served the summons, the court can impose a fine of up to KRW5 million. Additionally, if the witness repeatedly does not attend, then the court can order detention of the witness for up to seven days. The court can force the witness to attend the examination hearing with the help of a police officer by issuing a detention warrant.

An individual corporate director’s or officer’s knowledge regarding fraudulent matters can be attributed to the company, provided that they acted in their capacity as a corporate director and the other party had knowledge that a corporate director acted on its behalf. Conversely, if an individual director purportedly acted on a company’s behalf and the other party had knowledge that they did not actually represent the company, the director’s act may not be attributed to the company. It can serve in the company’s defence that it does not want the director’s personal act to be attributed to it.

In addition to punishing perpetrators for illegal acts, there are special rules in Korea regarding punishing the relevant corporation – for instance, the joint punishment provision.

Piercing the Corporate Veil

Piercing the corporate veil is a concept that is recognised in Korea, though in extremely rare cases. In Korea, this theory is sometimes called the doctrine of the disregard of the corporate entity, which has the same meaning. The main factors in this theory include the following:

• there must be unity of interest and ownership between the two entities;

• fraudulent acts by the shareholders wholly governing the corporate entity; and

• this therefore creates inequitable damage to the corporate entity’s creditors.

Although a company may appear to be a corporation, in reality, if it is merely an individual entity of the company behind the corporation that is involved, or the company is used as a means to avoid the application of law such as tax evasion in the running of the company, then the corporate form cannot be abused.

Relevant Korean Supreme Court Cases

The Korean Supreme Court has held that “as a stock company is a separate entity independent of its shareholders, its independent legal personality is not denied in principle. However, if an individual establishes a company with the same business purpose, physical equipment, and human members while conducting business without establishing a company, the company has the form of a corporation in appearance, but is merely borrowing the form of a corporation. In exceptional cases where the company is merely a private enterprise of an individual who is completely behind the legal personality, or the company is used rudely as a means to avoid legal liability to the individual, we can deny the legal personality of the company and hold the individual responsible” (Supreme Court 2019da293449 Decision).

In another case, the Korean Supreme Court held that, if a corporate entity has its form as a company but is actually a personal entity or is used to evade liability for background owners, this is against the rule of equity and any background owner shall be liable for corporate liability (Supreme Court 2008da82490 Decision).

The Reverse Application of Piercing the Corporate Veil

The reverse application of corporate denial is the theory that, when a debtor invests property in order to avoid debt and establishes a new company and steals property, the newly established company should also be liable to the creditor. The Korean Supreme Court accepted this theory and held that if the existing company establishes a new company with substantially the same form and contents as the company for the purpose of avoiding debt, the establishment of the new company is an abuse of the company system to achieve the illegal purpose of avoiding debt of the existing company (Supreme Court 93da44531 Decision; Supreme Court 97da21604 Decision; Supreme Court 2002da66892 Decision).

Additionally, the Korean Supreme Court held that arguing that the above two companies have separate corporate personalities is not permissible in good faith; therefore, the creditors of the existing company will be able to claim the performance of their debts from either of the above two companies (Supreme Court 2002da66892 Decision).

Derivative Lawsuits

Pursuant to Article 403 of the Commercial Act, a shareholder who owns 1% of shares of a company can file a derivative lawsuit on behalf of the company against the liable directors of the company. The ownership rate of 1% is lowered for a listed company, where 0.01% of shares is sufficient to file a derivative lawsuit pursuant to Article 542-6(6) of the Commercial Act.

Adoption of Multiple Derivative Lawsuits

Additionally, according to Article 406-2 of the Commercial Act, enacted on 29 December 2020, a shareholder who owns 1% of shares of a parent company can file a derivative lawsuit on behalf of a subsidiary company against the liable director of the subsidiary company, which is called a multiple derivative lawsuit. The ownership rate of 1% is lowered for a listed company; therefore, a shareholder who owns 0.5% of shares of a parent company can file a derivative lawsuit on behalf of the subsidiary company.

This adoption of the multiple derivative lawsuit was initially controversial in Korea, as there were a lot of objections from the business sector.

The Two Types of Joinder of Overseas Parties

Joinder of overseas parties can be broadly categorised into two types based on the Civil Procedure Act, one of which is a voluntary joinder by overseas parties who want to join a pending fraud claim in Korea, and the other being notice of a pending fraud claim given to plausibly affected parties and providing them with the option of joining the pending litigation. In both cases, the parties who want to join the pending claims or who are given notice of the claims should have a legal interest in the result of the claims that can justify the joinder of parties, and must get the court’s permission in this regard.

The service process for overseas parties is based on the Hague Convention or a bilateral treaty, and it generally takes around six to 12 months in processing. There is no specific option or alternative in Korea to speed up the service process out of the jurisdiction.

In monetary claims, the most usual methods of enforcement available in Korea are applications for an attachment order on the bank accounts or real estate held in the name of debtors, provided that the creditor has a final and enforceable judgment. Typically, it takes around three to six months to handle enforcement procedures, depending on the characteristic of the attached assets. If a creditor does not have a final and enforceable judgment, however, and wants to preserve the debtor’s assets in advance, the creditor can file an application for a preliminary attachment order.

In non-monetary claims where the creditor has a right to deliver a property against the debtor who possesses it, the creditor can file an application for a delivery request with the enforcing court.

A witness can invoke the right to refuse to provide information when it is related to self-incrimination, or where there is a risk that their relative could be charged. In addition, the fact that a party has actually invoked privilege does not affect the essence of the case, and no inferences are drawn from raising such a privilege.

Pursuant to Article 26 of the Lawyers Act, a lawyer shall not disclose confidential information and has a right to refuse to provide such confidential information. However, the Korean legal system does not yet have the sort of privilege widely recognised in common law countries. Such confidentiality or privilege can be restricted when there is an important public need or the client’s consent, or if it is needed to defend the lawyer’s own interests.

However, there is increasing controversy regarding the restriction of confidentiality when there is an important public need, which can be broadly or arbitrarily interpreted by the investigating authorities. The Korean Bar Association is trying to amend the Lawyers Act in order to adopt the attorney–client privilege, which is an indispensable concept in terms of preserving legal professionalism.

No General Rule Recognising Punitive Damages

In principle, the Korean legal system does not recognise so-called punitive damages in fraud claims and there is no general rule accepting punitive damages. Among the various kinds of damage compensation, the Korean legal system typically accepts compensatory damage in a tort or breach-of-contract claim.

Adoption of Punitive Damages in Some Special Acts Since 2011

In 2011, in a case of compensation for damages caused by abuse of power by contractors, punitive damage compensation (more precisely, triple-damage compensation) was first introduced in Article 35(2) of the Act of Fair Subcontract Transactions. This is the first legal provision to recognise punitive damages in Korea.

Since the adoption of punitive damages in the Act of Fair Subcontract Transactions, special acts on various areas have adopted punitive damages clauses, including the following:

• Act on the Protection of Fixed-Term and Part-Time Workers;
• Act on the Protection, etc of Dispatched Workers;
• Act on Fairness of Agency Transactions;
• Act on Fairness of Franchise Transactions;
• Product Liability Act; and
• Antitrust and Fair Trade Act, etc.

Although there is no general provision on punitive damages in fraud claims, special acts where fairness of transactions is thought to be needed, and special clauses adopting triple-damage compensation, have been introduced.

The Supreme Court’s Ruling Recognising That the US Court’s Punitive Damages Award Can Be Enforced in Korea

Recently, the Korean Supreme Court held that a Hawaii court’s judgment, which approved punitive damages for a US company due to a Korean company’s unfair trade practices, can be enforced in Korea (Supreme Court 2018da231550 Decision). In this case, the Korean Supreme Court specifically held that “the domestic Fair Trade Act does not allow compensation for damages that exceed the scope of compensation for unfair trade practices, but is introducing a system that allows compensation within three times the actual amount of damages for unfair joint actions of business operators. It is difficult to see that it is unacceptable in light of the principles, ideology, and system of our country’s damage compensation system to approve a judgment of a foreign court that ordered damages equal to three times the actual amount of damage.”

The Korean Supreme Court also held that even if the foreign law applied to a foreign judgment determines a certain multiple of the actual damage amount as the final damage amount, it is not possible to deny approval of the foreign judgment based on that alone.

In the past, it has been acknowledged that punitive damages cannot be recognised and enforced in Korea, mainly because it is against public policy. However, since the recent aforementioned Supreme Court case, there will be recurring considerations on whether to recognise punitive damages in a specific case.

No General Rules on Exemplary Damages

There is no special rule in relation to exemplary damages in addition to compensatory damages in the Korean legal system; however, when there is difficulty in proving damage amounts, such as mental distress or something similar, courts have a tendency to set a nominal amount of money as compensatory damages.

The Act on Real Name Financial Transactions and Confidentiality regulates and protects so-called banking secrecy in general. Article 4(1) of the Act states that “a person who engages in financial institutions shall not share information or data on the details of financial transactions to another without the written request or consent of the title holder” unless there is a court order to submit or a warrant issued by a judge, etc.

Typically, a party can file an application for an order to submit financial transaction information with the court during the course of civil or criminal claims in relation to fraud allegations, provided that the judge issues an order in this regard. Through the above procedure, a party can legitimately obtain confidential financial information.

Definition of Virtual Assets in Relevant Rules

The Criminal Proceeds Concealment Control Act stipulates that “property resulting from a criminal act that falls under a serious crime or property obtained as a reward for the criminal act can be confiscated” (Article 2(2)(a), Article 8(1)). Additionally, the Enforcement Decree of this Act stipulates that “hidden property refers to cash, deposits, stocks and other tangible and intangible property value that is hidden by a person whose judgment on confiscation or collection has been finalised” (Article 2(2)). Intangible assets that have been acquired through criminal acts that fall under the serious crimes stipulated in the Criminal Proceeds Concealment Control Act may be confiscated.

Article 2(3) of the Act on Reporting and Use of Specific Financial Transaction Information newly amended in 2021 stipulates that “a virtual asset means an electronic certificate (including any rights related thereto) that has economic value and can be traded or transferred electronically”. It is intended to provide a basis for securing the grounds for supervision and inspection by the head of the Korea Financial Information Analysis Institute for the implementation of anti-money laundering obligations, such as reporting suspicious transactions and high-value cash transactions by virtual-asset business operators.

Whether a Virtual Asset Is an Intangible Property With a Property Value

With the recent proliferation of cryptocurrencies such as bitcoin, and the increasing number of cases of their misuse as a means of hiding assets, municipal governments across Korea are putting pressure on delinquents with a new method called virtual currency seizure. With the revision of the Act on the Reporting and Use of Specific Financial Transaction Information, virtual-asset business operators have to fulfil their respective obligations, such as customer identification and suspicious transaction reporting, to existing financial institutions, thus making asset tracking possible.

Related Supreme Court Cases

In 2018, the Korean Supreme Court ruled that virtual currency could be confiscated as it was regarded as an intangible asset with property value (Supreme Court 2018do3619 Decision). The question is whether or not bitcoin is an intangible property with a property value. In this case, the Korean Supreme Court held that:

• bitcoin is a kind of so-called virtual currency that digitally represents economic value and enables electronic transfer, storage and transaction; and
• bitcoin is an intangible asset of property value based on the fact that it was treated as having value by being paid for by advertisers who wanted it.

There are increasing numbers of cases in which people apply for provisional seizure by compulsory execution of virtual assets such as bitcoin. However, as there is no statute related to civil enforcement on virtual assets, confusion is expected when a forced enforcement application is requested. Therefore, a study by an incumbent judge proposed that guidelines should be presented in the Korean Supreme Court rules until relevant legislation is implemented.