It Became a Word of the Past that ‘Public Fund is Free Easy Money,’ Illicit profits from False Claims to be Entirely Restituted and Penalties up to 5 Times to be Imposed

Punishments including confinement for not more than 3 years in prison (or penalties of KRW 30 million or less) will be meted out to those taking disadvantageous measures against corruption reporters, much harsher ones than fines previously imposed thereon

March 29, 2019

Anti-Corruption and Civil Rights Commission

The Republic of Korea

From now on, false or excessive claims of public funds, including various subsidies, compensation and contributions, will be subject to financial penalties up to 5 times, and illegitimate benefits derived from such claims will be all restituted.

In addition, in order to strike a balance between the level of protection for corruption reporters and public interest violation reporters, confinement for three years or below in jail (or administrative fines of not more than KRW 30 million), etc., which is a much more severe punishment than the previously imposed fines of not more than KRW 10 million, will be inflicted on anyone who takes such disadvantageous measures as dismissal or leave from office, etc. against corruption reporters.

The Anti-Corruption and Civil Rights Commission (ACRC, Chairperson Pak Un Jong) announced that the Act on Prohibition of False Claims for Public Funds and Recovery of Illicit Profits (the “Illicit Profits Recovery Act”), which provides for the aforesaid sanctions, and the amendments to the Anti-Corruption Act* were passed at the plenary session of the National Assembly on March 28.

* Act on the Prevention of Corruption and the Establishment and Management of the Anti- Corruption and Civil Rights Commission

‘The Illicit Profits Recovery Act’ will take effect on January 1 of next year and ‘the revised Anti-Corruption Act’ will enter into force 6 months after the date of its promulgation.

There were some difficulties for the government to effectively redress leaks in public finance since there were no legal grounds in relevant laws for the restitution of illegitimate gains or imposition of financial penalties in the case where a person makes false claims of public funds such as government subsidies, etc.

The ACRC has been pushing ahead with ‘the task to eradicate the illicit receipt of government subsidies or grants’ in conjunction with other relevant ministries, which is one of the nine tasks pursued at the pan-governmental level to root out ‘cheating and special privileges in people’s day-to-day life.’ The ACRC expects that the enactment of the False Claims Act passed at the plenary session of the National Assembly will lay important institutional foundations for the prevention of leaks in public finance, including false claims.

The False Claims Act mainly provides for the restitution of the entire amount of subsidies, compensations, or contributions, etc. of various kinds falsely or excessively claimed, improperly used for other purposes than the indicated ones, or paid out by mistake.

In particular, if a person falsely or excessively claims or improperly uses government subsidies, compensations, or contributions, etc. for purposes other than the initially indicated ones, penalties up to 5 times the value of illegitimate benefits will be imposed with the exception of the case where they have been given by mistake.

However, such financial penalties will not apply to the following cases: where the person voluntarily reports and restores all of his/her illicit benefits to state coffers before the disposition of restitution; where the total value of illicit benefits amounts to KRW 1 million or less; and where the illegitimately accrued benefits concerned are support funds, etc. provided for the underprivileged or patriots/veterans, etc. including basic livelihood security payments, disability allowances, disability pension benefits, and basic pension benefits, etc.

In addition, in the case of habitual false claims of a large amount of public funds, the list of the habitual false claimants will be made public after deliberation. The term ‘habitual false claimants’ refers to those who have been levied penalties at least twice from the same administrative authority for the past three years and the sum of the value of his/her illegitimate benefits amounts to KRW 30 million or above.

Along with this, the False Claims Act provides that anyone can report corruption related to false claims of public funds to responsible public agencies, or supervisory institutions, the board of audit and inspection, investigative agencies, or the ACRC, and that a reporter shall be thoroughly protected and adequately rewarded.

The revised ‘Anti-Corruption Act,’ which provides the same level of protection for corruption reporters as the one for public interest whistleblowers, also passed the National Assembly.

The ‘Anti-Corruption Act’ has been so far evaluated as being weaker than the ‘Act on the Protection of Public Interest Whistleblowers’ enacted in 2011 in terms of protection for corruption reporters and lenient on those who take disadvantageous measures such as dismissal, etc. against reporters.

Through the revision, the provision of protection of a reporter under the ‘Act on the Protection of Public Interest Whistleblowers’ has been incorporated into the Anti-Corruption Act, thus addressing the problem caused by differentiated protection level, depending on whether it is a corruption report or public interest violation report.

The revised Anti-Corruption Act mainly provides for the following: ▲ protection of a person as a corruption reporter who testifies in the National Assembly or the Court, or brings a charge or accusation to an investigation agency; ▲imposition of a charge for compelling compliance of KRW 30 million or less on those who do not take measures necessary to revoke the disadvantageous disposition on a corruption reporter requested by the ACRC; ▲ a provision of relief money to a corruption reporter who has suffered physical or psychological damage or incurred costs on the grounds of his/her reporting; ▲ heavier punishment, etc. of those taking such disadvantageous measures as dismissal or leave from office, etc. against a corruption reporter (imprisonment with labor for not more than three years or a fine not exceeding KRW 30 million).

The Chairperson Pak Un Jong of the ACRC said, “The Illicit Profits Recovery Act and the amended Anti-Corruption Act are to realize sound and fair provision of public finance to those with legitimate rights to claim it and effectively protect a corruption reporter. The Commission will make a full preparation for the implementation of the two Acts,” adding that “I expect the implementation of the two Acts will fundamentally deter the illegal receipt of public funds prevalent in our society and facilitate more courageous reporting on public sector corruption in the years to come.”