CONTENTS
- 1. Anti-Corruption | Concept Explained
- - Domestic Anti-Corruption Legal Framework
- - Anti-Corruption Law Applicable to Public Officials
- 2. Anti-Corruption | Commonly Occurring Corrupt Acts
- - Types and Requirements of Corrupt Acts by Public Officials and Public Institutions
- 3. Anti-Corruption | Examples of Whether It Applies
- - Whether a Person Qualifies as a Public Official
- - Duty-Relatedness of a Public Official
- - Whether a Benefit Was Pursued for a Third Party
- - Whether an Entity Qualifies as a Public Institution
- - Relatedness to a Public Institution's Use of Budget
- 4. Anti-Corruption | The Need to Prepare Response Measures
- - Establishing an Anti-Corruption Compliance Management System
- - Establishing a Preventive System
- - Establishing a System for Subsequent Detection and Sanctions
- - Legal Risk Management and Use of External Certification
- 5. Anti-Corruption | Corporate Anti-Corruption Risk Checklist
1. Anti-Corruption | Concept Explained
The field of anti-corruption holds an increasingly important position as a core element of corporate management.
Anti-corruption refers to the systems and procedures that prevent, control, and regulate the improper exercise of authority or the abuse of public position or power for private gain, across both the public and private sectors.
Corrupt conduct includes acts in which a public official abuses an official position or authority to pursue benefits in violation of statutes, taking various forms such as bribery, public-sector corruption, embezzlement, kickbacks, breach of trust, abuse of power, illicit political funding, contract collusion, and lobbyist-related violations.
In simple terms, anti-corruption may be described as ‘all institutional and ethical mechanisms intended to prevent a person from using official authority to obtain private gain or to help a third party obtain an improper benefit’.
The subjects of corruption are not limited to public officials but may also include corporate executives and employees, business partners, agents, and even customers.
In particular, corporate anti-corruption activities have recently become an important evaluation criterion for global investors as part of ESG management, functioning as a core value of sustainable management beyond a mere legal obligation.
Domestic Anti-Corruption Legal Framework
Korea's anti-corruption-related statutes are organized into the following framework.
▶Act on the Prevention of Corruption and the Establishment and Operation of the Anti-Corruption and Civil Rights Commission
Sets out the regulation of corrupt acts and the corruption-monitoring function of the Anti-Corruption and Civil Rights Commission
▶Improper Solicitation and Graft Act (commonly known as the Kim Young-ran Act)
Regulates the receipt of money or goods, solicitation, entertainment, and provision of conveniences targeting public officials, members of the press, teachers, and others
Anti-Corruption Law Applicable to Public Officials
Under anti-corruption law, 'corruption' must satisfy the following requirements.
① A public official or an executive or employee of a public institution
② receives money, goods, entertainment, or the like in connection with their duties,
③ abuses authority to obtain a benefit, or
④ causes loss to a public institution in violation of statutes
Here, a 'public official' includes public servants, executives and employees of public institutions, and persons performing duties entrusted by a public institution, while executives and employees of ordinary private companies are not subject to the law.
Embezzlement, breach of trust, kickbacks, bid rigging, fictitious transactions, lobbying, and foreign corrupt acts by a company's executives and employees are punished under the relevant individual statutes rather than the anti-corruption law.
Anti-corruption is the general term for the institutional, administrative, and legal measures that prevent, detect, punish, and prevent the recurrence of such corrupt acts by public officials.
2. Anti-Corruption | Commonly Occurring Corrupt Acts
The types of corruption under anti-corruption law are as follows.
▶Receipt of Money, Goods, or Entertainment : Receiving, demanding, or promising money, goods, entertainment, conveniences, or the like in connection with one's duties
▶Abuse of Authority : Abusing authority to compel another person to perform an act they are not obligated to perform or to obstruct the exercise of a right
▶Causing Loss to a Public Institution : Causing financial loss to a public institution in violation of statutes
▶Involvement in Improper Transactions : Using one's duties, such as in licensing or the selection of contractors, to grant privileges to a particular person or to secure benefits
▶Nepotistic Hiring Misconduct : Hiring relatives in violation of fairness during the recruitment process of a public institution
▶Contract Collusion and Bidding Misconduct : Colluding in advance with a particular person during the conclusion of a contract related to one's duties to adjust transaction terms favorably or to receive money or goods
Types and Requirements of Corrupt Acts by Public Officials and Public Institutions
To prevent corruption by public officials and to secure the integrity of public institutions, the 「Act on the Prevention of Corruption and the Establishment and Operation of the Anti-Corruption and Civil Rights Commission」 sets out two types of corrupt acts.
One is corrupt acts related to the duties of a public official, and the other is corrupt acts related to the use of a public institution's budget and similar matters.
The requirements and applicable examples of each type are organized in detail as follows.
▶Corrupt Acts Related to the Duties of a Public Official
Under the anti-corruption law, a public official includes, pursuant to Article 2 of the same Act, state public servants, local public servants, executives and employees of public institutions, and persons performing duties entrusted by a public institution.
Purely private disputes or personal transactions unrelated to one's duties are excluded here, and an act is judged to be corrupt only if there is duty-relatedness together with an abuse of position or authority or a violation of statutes, and a legal or de facto benefit results.
However, a reflexive benefit or a degree of indirect influence is not included.
▶Corrupt Acts Related to a Public Institution's Use of Budget and Similar Matters
Here, a public institution means only an institution as defined under Article 2 of the 「Anti-Corruption Act」, and private companies or private corporations are not covered.
This type requires that there be an act in violation of statutes and that, as a result, financial or economic loss has been caused to the public institution.
3. Anti-Corruption | Examples of Whether It Applies
Reviewing whether conduct constitutes corruption through specific examples is set out as follows.
Whether a Person Qualifies as a Public Official
Constitutes a Corrupt Act
: A public official in charge purchases goods at an inflated price from a supplier with whom they are on friendly terms and pays for them without any inspection procedure
Does Not Constitute a Corrupt Act
: A company chairman violates the law and uses company funds for personal purposes
→ Not subject to the anti-corruption law because the person is not a public official
Duty-Relatedness of a Public Official
Constitutes a Corrupt Act
: A public official provides a contractor with confidential contract-related information learned in the course of their duties and receives money or goods in return
Does Not Constitute a Corrupt Act
: A public official, at a neighbor's request, introduces a real estate buyer and receives a reward
→ No duty-relatedness
Whether a Benefit Was Pursued for a Third Party
Constitutes a Corrupt Act
: A police officer investigating a traffic accident receives money or goods and conducts the investigation favorably for one party
Does Not Constitute a Corrupt Act
: A presiding judge, without receiving any money or goods, adopts testimony favorable to the opposing party and enters a judgment
→ No pursuit of a benefit for a third party through an unlawful act
Whether an Entity Qualifies as a Public Institution
Constitutes a Corrupt Act
: A public institution, in order to use up its remaining budget, purchases unnecessary equipment in violation of statutes and leaves it idle in a warehouse
Does Not Constitute a Corrupt Act
: A private company, to help a company owned by an acquaintance of its president, places an equipment order and wastes company funds
→ Not subject to the anti-corruption law because it is not a public institution
Relatedness to a Public Institution's Use of Budget
Constitutes a Corrupt Act
: The National Health Insurance Service files claims by falsely manipulating treatment records in order to receive excessive medical fees
Does Not Constitute a Corrupt Act
: Charging a patient a high treatment fee for non-covered treatment items, or administering one injection and billing for two
→ No direct relation to a public institution's use of budget
4. Anti-Corruption | The Need to Prepare Response Measures
The anti-corruption law directly regulates corruption by public officials and public institutions, but if a company becomes the counterpart, for example by providing money, goods, or entertainment to a public official or by taking part in corrupt acts such as bidding misconduct, lobbying, illegal solicitation, or improper licensing requests, the company may also face very heavy administrative and criminal sanctions, including the offense of offering a bribe under the Criminal Act, violations of the Act on the Management of Public Institutions, violations of the Fair Trade Act, and restrictions on bidding eligibility imposed by the Public Procurement Service.
In particular, if an investigation of corrupt acts by the Anti-Corruption and Civil Rights Commission reveals corporate involvement, the company is exposed to overlapping risks such as restrictions on bidding participation, suspension of transactions with public institutions, claims for damages, tax investigations, and subsequent civil and criminal litigation.
Even if no legal punishment is imposed, corporate credibility, shareholder value, brand reputation, and consumer image may decline sharply.
For this reason, it is important to establish an anti-corruption compliance system and ethical management structure in advance so as to prepare a framework for risk prevention and crisis response.
Establishing an Anti-Corruption Compliance Management System
1. Adoption of an Anti-Corruption Management Policy
A company should proclaim an anti-corruption management declaration or ethics charter in the name of its representative director, make compliance mandatory for its executives and employees, and clearly establish a zero-tolerance policy on corruption within the company.
It is advisable to announce the policy company-wide through the corporate website, the electronic approval system, email, and similar channels so that it is communicated to all employees and partner companies.
2. Refinement of Ethics and Compliance Management Rules
A company should establish anti-corruption rules, a code of ethics for executives and employees, integrity pledges, and whistleblower protection rules, and should specify in detail the conduct prohibited in the course of duties and the applicable sanctions.
In particular, strict prohibitions should be put in place regarding the receipt of money, goods, or entertainment, improper licensing solicitations, contract misconduct, bid rigging, and the disclosure of internal information.
3. Creation of a Dedicated Anti-Corruption Organization
A company should establish a company-wide department dedicated to ethical management to monitor corruption risk in real time, and should operate an internal reporting center separate from the audit department.
For small and medium-sized enterprises, it is also effective to enter into an agreement with an external legal advisory body to put an anti-corruption advisory system in place.
Establishing a Preventive System
1. Employee Training and Integrity Pledges
It is important to provide anti-corruption and integrity training to executives and employees on a regular basis and to require the submission of an integrity pledge upon each hiring and promotion, so as to instill awareness of the duty of integrity.
In particular, it is effective to designate senior officers and those in charge of accounting, procurement, and human resources as subjects of separate, intensive training.
2. Introduction of an Integrity Contract System for Partner Companies
A company should insert special integrity-contract conditions into all contracts concluded with partner companies, specify that the receipt of money or goods or bidding misconduct will result in termination of the contract and liability for damages, and operate a system of restrictions on bidding eligibility and blacklist registration.
3. Establishment of a Conflict-of-Interest Prevention System
If an executive or employee transacts with an external company, a relative, or an acquaintance's company in which they have a duty-related interest, conflict-of-interest reporting must be made mandatory, and when a conflict of interest arises, the person must be removed from the duty or the matter must undergo independent audit and approval.
Establishing a System for Subsequent Detection and Sanctions
1. Operation of an Internal Reporting System
A company should operate an anonymous and confidential internal reporting center that can receive reports from executives, employees, partner companies, and outsiders, and reports received should be investigated independently by the ethics management office or the audit office.
It is important to secure the fairness of investigation results through the advice of external legal professionals.
2. Preparation of a Whistleblower Protection System
A company should clearly provide in its rules for a prohibition on personnel disadvantages against reporters, status protection, personal safety protection, and the payment of rewards, and should refine its rules so that prompt remedial measures can be taken if any disadvantage occurs.
A reward system that encourages the reporting of corruption may also be introduced.
3. Strong Sanctions upon Detection of Corruption
When a corrupt act is detected, the principle is to apply internal disciplinary rules and personnel management rules under a zero-tolerance principle and to combine disciplinary dismissal, claims for damages, and criminal complaints.
In the case of partner companies, contract termination, restrictions on bidding participation, and legal measures for damages are required.
Legal Risk Management and Use of External Certification
1. Responding to Public Institution Bidding Risk
If a corruption case occurs, administrative sanctions such as restrictions on bidding participation imposed by the Public Procurement Service, suspension of transactions with public institutions, a downgrade in credit rating, and a decline in reputation assessment may be imposed, so a company should conduct advance risk checks and, upon detection, report a prompt investigation of the cause and improvement measures.
2. Obtaining Anti-Corruption Management System Certification
For corporate credibility and external bidding competitiveness, it is also effective to obtain anti-corruption management system certification and to have the anti-corruption management framework objectively verified.
It is required for large companies and public institutions, and mid-sized and small and medium-sized enterprises are also increasingly adopting it.
3. Use of Legal Advisory and External Audits
A company should continuously monitor amendments to anti-corruption-related statutes, recommendations of the Anti-Corruption and Civil Rights Commission, and cases of detected corrupt acts, and it is advisable to contract with an external law firm or accounting firm to operate a system for periodic legal advice and internal audit support.
5. Anti-Corruption | Corporate Anti-Corruption Risk Checklist
✅Are the key executives and department heads free of any record of corruption, embezzlement, bribery, or breach of trust within the past three years?
✅Is there a system in place to check for the possibility of bidding misconduct, kickbacks, or back-room dealing in the selection and contracting process for suppliers, partner companies, and service providers?
✅Is there no practice of external lobbying, solicitation, or the provision of gifts or entertainment toward those in charge of contracts, licensing, or approval work with public institutions?
✅Is there an internal approval and recording system in place for meetings, meals, and hospitality with public institution officials?
✅When participating in public bidding, are the possibilities of bid rigging, improper prior consultation, and illegal subcontracting checked in advance?
✅When a corrupt act occurs, are procedures for internal discipline, contract termination, and legal measures set out in a manual?
✅Are partner companies, agencies, and subcontractors required to sign an anti-corruption pledge or a pledge to comply with ethical norms?
✅When a corruption case occurs, is a system in place for immediate response together with legal professionals and an external law firm?
✅When a corrupt act is detected, are measures prepared for recovery of harm, compensation for damages, and clarification of the perpetrator's responsibility?
✅Is a roadmap in place to prepare for administrative dispositions such as restrictions on public institution bidding participation and exclusion from publicly supported projects?
✅Is a plan in place for notifying ESG rating agencies, institutional investors, and major business partners of corruption cases and for providing subsequent explanations?
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