With newly appointed Fair Trade Commission Chairperson Ju Byung-gi declaring he will sharply raise the level of sanctions on corporations' unfair practices, corporations are focused on what policies will follow. Ju has said he would impose a penalty surcharge at a level that exceeds the potential gains from violations such as collusion and abuse of power. Analysts say the Fair Trade Commission's penalty surcharge system is increasingly likely to be overhauled in tandem with the government's push for discussions on the "rationalization of economic criminal penalties."
According to government officials on the 26th, after Chairperson Ju took office, the Fair Trade Commission has been reviewing the overall penalty surcharge framework, including raising penalty surcharges. In the industry, there is an outlook that the intensity of sanctions can be strengthened by aggressively imposing penalty surcharges up to the legal ceiling under the current system and reducing mitigation.
Immediately after taking office, Chairperson Ju said, "We will raise the severity of punishment for legal violations to a level that significantly exceeds the potential gains from such acts," adding, "We will foster innovative corporations and strictly punish corporations that squander capital on unfair exploitation and self-dealing." This is in line with President Lee Jae-myung's stance to reduce corporate criminal penalties while strengthening monetary sanctions such as penalty surcharges and fines.
The government, in a joint effort with relevant ministries, is discussing clarifying the elements of the criminal breach of trust under the Penal Code and shifting to an economic criminal penalty system centered on penalty surcharges and fines. To prevent the contraction of corporate management due to excessive criminal punishment and to enhance the effectiveness of sanctions, the Fair Trade Commission's penalty surcharge system is being cited as one model.
There have already been multiple debates over the effectiveness of penalty surcharges. According to data submitted by Heo Young, a Democratic Party of Korea lawmaker on the National Policy Committee, illegal sales from collusion reached 91.6 trillion won over the past five years, but the penalty surcharges imposed totaled 2.2 trillion won, amounting to only about 2.5% of sales. As the gains from collusion are far greater, critics say the sanctions are weak from the corporations' perspective.
Looking at past cases, Hyundai Steel generated 4.8 trillion won in sales from collusion, but the penalty surcharge remained in the 170 billion won range. The three telecom companies (SK Telecom, KT and LG Uplus) likewise each earned sales in the 2 trillion to 3 trillion won range, but their penalty surcharges stayed around 20 billion to 30 billion won, respectively.
Under the Fair Trade Commission's current penalty surcharge system, the basic assessment rate is calculated based on related sales, and the final amount is determined by comprehensively reflecting the duration and frequency of violations, the degree of illegality, and whether they were intentional or negligent. When the Fair Trade Act was comprehensively revised in 2021, the ceiling for penalty surcharges was already raised, from 2% to 4% under the ad valorem standard and from 500 million won to 1 billion won under the fixed-amount standard.
Separately, the Fair Trade Commission is conducting a research project to overhaul the criteria for imposing penalty surcharges under the Large-scale Distribution Transactions Act and the Agency Transactions Act. Under the current system, because it is said to be difficult to calculate the scale of violations, the penalty surcharge ceiling is capped at 500 million won, which has drawn constant criticism as a "slap on the wrist."
The Fair Trade Commission is reviewing aligning the penalty surcharge provisions of the two laws with the level of the Fair Trade Act. Even if the amount of violation is not clear, a plan to impose a penalty surcharge of 2% of related sales is being discussed.
Among experts, there is an opinion that for the "penalty surcharge exceeding potential gains" emphasized by Chairperson Ju to work in practice, a concrete calculation method must back it up. The core purposes of a penalty surcharge are to recover unjust gains and prevent recurrence. However, because it is difficult to calculate potential gains themselves, deciding which criteria to apply is cited as the biggest challenge.
Another variable is that the larger the penalty surcharge, the more cases may arise in which corporations respond with appeals. In fact, large corporations seek advice from law firms from the Fair Trade Commission's on-site investigation stage, so some analysts say courtroom battles could become more frequent as penalty surcharges grow.
Lee Hwang, a professor at Korea University School of Law, said, "The comprehensive revision of the Fair Trade Act in 2021 already doubled the penalty surcharge ceiling, and the actual imposed amounts have risen significantly since," adding, "Bringing up another increase in just a few years could cause institutional shock."
He went on to note, "If strengthening penalty surcharges is necessary, we should first closely examine whether the level of sanctions in Korea is sufficiently deterrent compared with overseas," adding, "Rather than simply concluding that weak penalty surcharges have led to repeated violations, it is necessary to scrutinize the causes of frequent violations."