Embezzlement of Funds | A Client Involved in a Wrongful Embezzlement of Funds Lawsuit, with the Plaintiff's Claims All Dismissed

Q. What is misappropriation of funds?

A. Misappropriation of funds is a crime in which a person who manages another person's money unlawfully takes that money or fails to return it.

It refers to the act of using or appropriating, for one's own benefit, money entrusted under a fiduciary relationship.

If a person misappropriates funds held in the course of their duties, they are subject to heavier punishment than for ordinary embezzlement.

Q. Is using company funds for personal purposes always embezzlement?

A. If an officer or employee with authority to manage company funds uses them for personal purposes, occupational embezzlement may be established.

However, even simple use may not constitute embezzlement if it was approved by the company or processed as a legitimate expense.

Q. What is the difference between embezzlement and breach of trust?

A. Embezzlement and breach of trust are distinguished according to the subject and purpose of the act.

Embezzlement is established when a person who keeps another person's property unlawfully acquires that property, while breach of trust is established when a person who handles another person's affairs commits an act contrary to that duty and thereby obtains a benefit.

For example, where a company employee diverts company funds for private use, the crime of embezzlement is established, while conduct such as receiving a bribe from a business partner and purchasing that partner's goods at a price far higher than the market price constitutes breach of trust.

Q. To establish misappropriation of funds, must there always be intent?

A. Yes. Embezzlement requires the intent to unlawfully treat another person's funds as one's own.

A mistake, an accounting error, or temporary use followed by immediate return may negate the establishment of embezzlement.

Q. In a misappropriation of funds case, how do criminal and civil liability differ?

A. Criminal and civil liability relating to misappropriation of funds are as follows.

- Criminal liability: If a criminal complaint is filed with the prosecutors' office, the person may be punished for embezzlement, and depending on the amount and the position held, may be subject to aggravated punishment for occupational embezzlement.
- Civil liability: The victim may file a claim for damages, such as a claim for return of the embezzled amount.

If an acquittal or a finding of no suspicion of crime is reached in the criminal case, the likelihood that the civil claim will also be dismissed increases, but it is not dismissed in all cases, so a separate response is necessary.


Q. What is the level of punishment for misappropriation of funds?

A. While ordinary embezzlement is punishable by imprisonment of up to five years or a fine of up to 15 million won, occupational embezzlement may be punishable by imprisonment of up to 10 years or a fine of up to 30 million won.

In addition, under the Act on Aggravated Punishment of Specific Economic Crimes, where the amount of benefit is at least 500 million won but less than 5 billion won, the person may be subject to imprisonment for a definite term of at least three years, and where the amount is at least 5 billion won, to life imprisonment or imprisonment for at least five years.

After receiving the subcontract for the construction in this case, the client gave a further subcontract to A, a team leader who was a third party.

The plaintiff was merely one of the workers recruited and brought in by A, and was not a party with whom the client directly contracted or to whom the client promised wages.

The Daeryun attorney argued that, in accordance with such facts, if the plaintiff had not received wages, the party against whom the claim should be made was A, not the client.

The construction payment that the third-party construction company paid to the client constitutes the client's own funds.

Therefore, regardless of how it was used, embezzlement against the plaintiff cannot be established.

In fact, although the plaintiff filed a criminal complaint against the defendant and A on a charge of embezzlement, the prosecutors' office made a finding of no suspicion of crime, holding that embezzlement was not established.

Even if the plaintiff's claim were partly accepted, the extinctive prescription in this case has already been completed.

The construction payment claimed by the plaintiff is subject to completion of the extinctive prescription if not exercised for three years.

The Daeryun attorney emphasized that, since the plaintiff applied for a payment order only at a point four years after the incident occurred, the claim was also legally barred.

▶Accurately ascertaining the facts

-The key is whether it is your own money or someone else's money.
-It must first be confirmed whether you were in a position to manage ‘another person's funds,’ such as company funds, joint-business funds, or money held in trust.

▶Securing evidence

-You should secure as much as possible, such as contracts, accounting books, remittance records, and expenditure receipts.
-You must be able to explain, with objective materials, where the funds were used and under what agreement they were disbursed.
-If there was company approval or consent to the joint business, you must present documented evidence.

▶Reviewing the possibility of denying intent

-Embezzlement is established only where there is ‘an intent to unlawfully treat another person's funds as one's own.’
-If it was a mistake or an accounting error, an argument denying intent is possible.

▶Responding to criminal and civil matters simultaneously

-Criminal procedure: once a complaint is filed, you will be investigated by the investigative agency. If you make unfavorable statements in your initial account, it is difficult to undo them. You must respond strategically after acquiring legal knowledge.
-Civil procedure: the victim may file a claim for return of the embezzled amount. Even if no charge is found in the criminal matter, a response to the civil litigation is necessary.

▶Checking the extinctive prescription

-A short-term extinctive prescription of three years applies to matters such as construction payments and wage claims.
-If the claim is made late, a defense of extinctive prescription may be available.

In cases of misappropriation of funds, the key issues are whose money the funds were, in what legal relationship they arose, and with what intent they were used, so both precise examination of evidence and interpretation of the applicable law are required at the same time.

Daeryun LLC maintains the following system for responding to cases involving misappropriation of funds.

▶Operation of an Evidence Investigation Center

-A dedicated evidence investigation center selects and analyzes not only basic materials such as contracts, accounting ledgers, and remittance records, but also materials that may become points of contention in the case.

-It traces the actual flow of funds and cross-verifies whether statements and materials are consistent with one another.

▶Support from the Digital Forensics Center

-In embezzlement cases, digital evidence such as emails, messenger records, electronic payment records, and accounting program data is often important.

-Through its own digital forensics center, Daeryun LLC can restore and analyze electronic records remaining on mobile phones, PCs, servers, and the like, and present materials with evidentiary capacity in court.

▶Collaboration among attorneys specializing in each field

-Criminal law attorneys registered with the Korean Bar Association protect the client's rights at the stages of criminal complaint and investigation.

-At the same time, civil law attorneys respond to claims for the return of the embezzled funds and prevent financial loss.

-Where necessary, the firm also collaborates with in-house accountants and tax accountants to clearly organize complex flows of funds.