A public petition has been filed calling for liquidated damages equal to 10 times any illicit gains when the head of a cooperative or a cooperative executive leading redevelopment or reconstruction and other maintenance projects takes kickbacks or entertainment from a construction company (contractor) or a service provider. It urges punitive measures on illicit gains at maintenance business sites to eradicate corruption related to maintenance projects.
According to the National Assembly and the maintenance industry on the 23rd, a petition titled "Petition to amend the Act on the Improvement of Urban Areas and Residential Environments to introduce liquidated damages of 10 times illicit gains for reconstruction cooperative heads" was registered with the National Assembly's e-petition system on the 15th.
A person surnamed Kim, the petitioner, said in the purpose statement, "With more than half of households in our country now living in apartments, corruption in which cooperative heads and executives in reconstruction and redevelopment projects take kickbacks and entertainment from contractors and service firms continues," and added, "Despite criminal penalties and a damages system, the cooperative cannot fully recover its losses, and the perception remains that 'if caught, you lose a little, if not, you profit.'" The petitioner continued, "We petition the National Assembly to codify in the Urban Renewal Act a liquidated-damages system that recoups 10 times any illicit gains to the cooperative, along with a whistleblower reward and protection system," and said, "The reason corruption by reconstruction cooperative heads and executives keeps recurring is that current criminal penalties and damages alone lack deterrent power."
Specifically, the proposed amendment would first add a "10-times illicit gains liquidated damages" clause to the Urban Renewal Act. If a cooperative head or executive in a maintenance project receives or promises illicit gains such as money or entertainment from a contractor or maintenance operator, the law would specify that 10 times those gains must be paid to the cooperative as liquidated damages, and it asks that the claim for liquidated damages be exercised separately from criminal penalties and damages claims.
The petitioner also argued that a whistleblower reward and protection system should be introduced. If a whistleblower reports a cooperative executive's illicit gains to the cooperative or to investigative or administrative authorities and liquidated damages are collected, 30% of the collected amount should be paid to the whistleblower as a reward. The petitioner further asked that the standard bylaws for maintenance project cooperatives, which are enacted and notified by mayors and provincial governors, include provisions on liquidated damages, rewards, and protection, and that the Urban Renewal Act provide grounds to defer or deny approval if these are not reflected when approving or amending each cooperative's bylaws.
The petition has received support from at least 100 people within 30 days, and the speaker of the National Assembly is reviewing whether to disclose it to the public under the National Assembly Petition Review Rules. A maintenance industry official said, "There is a silent cartel among cooperative executives, service firms, and construction companies, making it hard to easily confirm illicit gains from breach of trust, embezzlement, or bribery," and added, "This petition arose because certain issues can only be resolved by creating an incentive structure for whistleblowers through rewards."
Hundreds of violations are uncovered every year at maintenance business sites. According to Son Myung-soo of the Democratic Party of Korea, joint inspections by the Ministry of Land, Infrastructure and Transport and local governments from 2018 to 2023 uncovered a total of 714 violations at maintenance business sites. Of these, 105 cases were referred for investigation.
In maintenance projects, contracts that burden cooperative members are often concluded without a general meeting resolution. For example, there are frequent cases of selecting appraisers and making improper private contracts, and of unregistered firms carrying out work. There are also recurring instances of taking bribes in return for selecting firms, as well as breach of trust, embezzlement, and the exchange of money and valuables, such as cooperative heads and executives embezzling cooperative funds.
However, because the Urban Renewal Act provides that cooperative heads and executives in maintenance projects can be punished for bribery under the Criminal Act as if they were public officials (Article 134 of the Urban Renewal Act), some say applying 10-times liquidated damages would be excessive.
Attorney Byun Seon-bo of Law Firm Jium said, "The Urban Renewal Act treats the status of cooperative heads and executives as equivalent to that of public officials and designates them as subject to bribery charges," and added, "Bribery is an issue that can be identified more clearly than breach of trust or embezzlement, and investigative authorities are actively probing cooperative-related crimes, so punishment is possible under current law without applying punitive liquidated damages."