CONTENTS
- 1. The Essence of the Policy Shift on Wrongful Receipt: A Transition from 'After-the-Fact Detection' to 'Preemptive Control'
- - The Core of the Measures Against Wrongful Receipt
- 2. Expansion of Inspection Targets for Wrongful Receipt: Effectively Entering a 'Comprehensive Inspection System'
- - Eightfold Increase in the Sanction Surcharge
- - Reduction of Discretion and Strengthening of Consistency in Sanctions
- - Integration of the e-Nara Doum System
- 3. The Policy Shift on Wrongful Receipt: A Structure in Which 'Inadequate Management' Rather Than 'Intent' Becomes the Issue
- - The Need for a Structural Design of a Compliance Framework
- 4. Responding to Wrongful-Receipt Investigations and Dispute Risk: The Importance of the Initial Response
- - A Stage That Requires 'Advance Design' Rather Than 'After-the-Fact Response'
- - Subsidies Are No Longer 'Support' but a 'Subject of Management'
1. The Essence of the Policy Shift on Wrongful Receipt: A Transition from 'After-the-Fact Detection' to 'Preemptive Control'
Wrongful receipt refers to acts such as receiving public funds, including national treasury subsidies, through false or improper means.
In the past, the wrongful receipt of subsidies tended to be regarded primarily as a matter resulting in recovery and a certain level of administrative sanctions, but its legal character is changing in line with recent shifts in government policy.
In particular, the measures to eradicate the wrongful receipt of national treasury subsidies announced in March 2026 are designed as a structure that simultaneously pursues a substantial expansion of inspection targets, an increase in the sanction surcharge, the introduction of a centralized control system, and the integration of systems, and they warrant attention in that they are transforming subsidy-related risk into a composite regulatory area in which administrative risk is combined with financial, criminal, and reputational risk.
The following examines the impact of this policy shift on corporate practice, the principal legal issues, and the appropriate direction for responding to it.
The Core of the Measures Against Wrongful Receipt
The core of these measures lies in realigning the overall subsidy management framework around 'advance prevention' and 'continuous control.'
Through this policy, the government has set the objective of subsidy management as "prevention, gap-free detection, and uncompromising follow-up measures" and is introducing the institutional mechanisms to realize this objective as a single package.
Whereas in the past the likelihood of actual detection was limited even where some possibility of a violation existed, going forward the very act of carrying out a subsidized project will become an undertaking that presupposes ongoing inspection and verification.
As a result, subsidies should be understood as a quasi-regulatory area that must be managed on the premise of an internal control framework.
2. Expansion of Inspection Targets for Wrongful Receipt: Effectively Entering a 'Comprehensive Inspection System'
The factor that has the most direct impact under this policy is the substantial expansion of the scope of inspection.
In pursuing a comprehensive inspection of the wrongful receipt of subsidies in 2026, the government has expanded the targets for inspection of central government private-sector subsidized projects more than tenfold compared with the previous year and has included even local government subsidized projects, which had previously been excluded from inspection.
In particular, as local subsidized projects above a certain scale have been included among the new inspection targets, a considerable number of the subsidized projects carried out by companies have come within the scope of inspection.
This change goes beyond an increase in the number of inspections; it indicates that the inspection method itself has shifted from 'selective audits' to 'regular and structural inspection.'
Eightfold Increase in the Sanction Surcharge
The fact that the ceiling on the sanction surcharge has been raised to up to eight times the amount wrongfully received is the key legal point of this policy shift.
This is a measure that elevates the wrongful receipt of subsidies to a level of risk that directly affects a company's financial structure.
For example, where a wrongful receipt of a certain amount is recognized, not only may that amount be recovered, but a sanction surcharge amounting to several times that sum may also be imposed, and in some cases additional administrative sanctions or even criminal liability may be imposed concurrently.
In particular, the following points should be noted.
- The sanction surcharge is a financial risk that is reflected directly in profit and loss.
- It has a negative effect on credit ratings by financial institutions and on attracting investment.
- There is a possibility of additional sanctions, such as restrictions on participation in public projects.
In addition, as whistleblower rewards have been expanded to a certain percentage of the recovered amount, the risk of internal reporting through internal employees, partner companies, and the like is also increasing in real terms.
Reduction of Discretion and Strengthening of Consistency in Sanctions
Whereas the previous structure was one in which whether and to what extent sanctions would be imposed was determined through a wrongful-receipt review committee within each ministry, under this policy a subsidy management committee centered on the Ministry of Budget and Planning will serve as the control tower.
This means that the criteria for determining wrongful receipt and for imposing sanctions will be managed uniformly at the central level, and the room for discretionary judgment on individual cases is likely to be progressively reduced.
In practical terms, the following changes are anticipated.
- Standardization of the level of sanctions for similar cases
- Uniform strengthening of sanctions in line with the policy stance
- Narrowing of the scope within which grounds for mitigation are recognized
Therefore, rather than expecting flexible responses based on individual circumstances as in the past, companies need to prepare in advance a defense strategy grounded in objective criteria.
Integration of the e-Nara Doum System
As the subsidy management systems are integrated, the subsidy information of the central government and local governments will be managed on a single platform.
As a result, the entire process of subsidy application, execution, and settlement will be accumulated as data, and cross-verification based on this data will become possible.
This signifies the following structural changes, in addition to improved administrative convenience.
- Detection of anomalies through comparison of data across projects
- An increased possibility of automatic detection through analysis of recurring patterns
- A shift from formal document review to substantive verification
In other words, going forward, an assertion that there is "no problem in form" alone will not suffice, and a management framework capable of explaining even the substantive transaction structure and the flow of funds will be required.
3. The Policy Shift on Wrongful Receipt: A Structure in Which 'Inadequate Management' Rather Than 'Intent' Becomes the Issue
In recent cases involving wrongful receipt, there has been an increase in instances in which wrongful receipt is recognized not because of clear intent but because of the absence of a management framework or inadequate internal controls.
The following types are representative of the issues that arise.
In particular, "accounting treatment that differs from the substance" may be judged to constitute wrongful receipt even in the absence of intent, so securing consistency among legal, accounting, and practical considerations operates as a crucial risk-management element.
The Need for a Structural Design of a Compliance Framework
Subsidy risk should be approached not as the problem of a particular department but as a management-framework problem for the organization as a whole.
Accordingly, companies need to design the following control structure across the entire subsidy management process.
- Application stage: Review of the legal adequacy of the business plan
- Execution stage: Clarification of budget-use criteria and approval procedures
- Accounting stage: Standardization of supporting documentation and accounting treatment standards
- Settlement stage: Establishment of a double-verification and advance-inspection system
- Internal control: Separation of roles and responsibilities among departments
Such a framework must be built as an effective control system capable of functioning in actual inspections and investigations.
4. Responding to Wrongful-Receipt Investigations and Dispute Risk: The Importance of the Initial Response
Along with the expansion of inspections, the frequency and intensity of on-site investigations and administrative investigations are also expected to increase.
In such cases, the most important thing is the initial response.
The accuracy and consistency of the materials and statements submitted in the early stage when an investigation is launched operate as a key factor in determining whether and to what extent sanctions will be imposed.
Therefore, companies need to secure their response capabilities in advance by, among other things, establishing an investigation-response manual, organizing standards for the submission of materials, preparing a framework for controlling internal communications, and conducting mock inspections.
A Stage That Requires 'Advance Design' Rather Than 'After-the-Fact Response'
Wrongful-receipt risk is now expanding beyond an administrative response into a composite dispute structure that extends to administrative appeals (a pre-litigation review before an administrative agency, comparable to an administrative appeal or agency review in common-law systems), administrative litigation, and criminal proceedings.
Accordingly, the role of the attorney is likewise no longer confined to after-the-fact responses but is expanding into the following areas.
- Advance legal review of whether wrongful receipt is present
- Formulation of an investigation-response strategy and representation
- Response to sanction surcharges and recovery dispositions
- Conduct of administrative appeals and administrative litigation
- Establishment of an internal compliance framework
In particular, a strategy that contests the very establishment of wrongful receipt has recently come to operate as an important mode of response, namely, a structural defense theory that 'there is no violation'.
Subsidies Are No Longer 'Support' but a 'Subject of Management'
This policy shift is a measure that has realigned the wrongful receipt of subsidies into a strong regulatory subject and an area of corporate risk management.
Amid the changes of expanded inspections, strengthened sanctions, and the introduction of a centralized control system, companies can no longer rely on after-the-fact responses and must manage risk in advance.
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