Enforcement decree of Act on Prohibition of False Claims for Public Funds and Recovery of Illicit Profits (Draft) whose legislation to be preannounced on Aug. 23 to take effect on January 1, 2020

In the case of false or fraudulent claims for the State, local and local education finance subsidies and grants (approx. 214 trillion won), the profits illegitimately derived from such claims to be entirely recovered and additional monetary sanctions up to five times to be imposed

August 23, 2019

Anti-Corruption and Civil Rights Commission

The Republic of Korea

The legislation draft of the ‘Enforcement Decree of the Act on Prohibition of False Claims for Public Funds and Recovery of Illicit Profits’ (the “Public Finance Recovery Act”), which provides for the recovery of the illegitimate profits derived from false claims for public subsidies and grants estimated at about 214 trillion won and the imposition of additional monetary sanctions up to five times, has been drawn up.

The Anti-Corruption and Civil Rights Commission (ACRC, Chairperson Pak Un Jong) plans to preannounce the legislation of the draft of the ‘Enforcement Decree of the Public Finance Recovery Act’ for 40 days starting from August 23 to October 2.

The ‘Public Finance Recovery Act’ was passed by the National Assembly in its plenary session on March 28 and enacted on April 16, 2019, and will come into effect on January 1, 2020.

If the Public Finance Recovery Act takes effect, public funds including a variety of government subsidies and grants, compensation and contributions will be recovered entirely by administrative authorities in cases where such public funds were ▲fraudulently or excessively claimed, ▲used for purposes other than those for which they were originally intended, and ▲erroneously made. As for the fraudulent or excessive claims and the use of public funds for any other purpose than the originally intended one, in particular, additional monetary sanctions up to five times will be imposed.

Still, if those who derived profits illegitimately from public funds for which he/she falsely claimed report voluntarily and return all of his/her such illicit profits to an administrative authority before an administrative disposition of recovering such profits is rendered to him/her, or if the total amount of such illicit profits does not exceed 1 million won, then the government grants-in-aid provided for the socially vulnerable, such as the basic livelihood security payments, disability allowances or pension benefits, basic pension benefits, and veterans benefits, may be excluded from being subject to additional monetary sanctions.

The list of those who have habitually made false or fraudulent claims for a large amount of public funds will be disclosed to the public after the Commission’s deliberation. Here the term “habitually” refers to the case where a person receives administrative dispositions of additional monetary sanctions twice or more from the same administrative authority for the past three years and the sum of his/her illicit profits amounts to not less than 30 million won.

Anyone can report the case of false or fraudulent claims for public finances to a public institution concerned, supervisory agency, the Board of Audit and Inspection, investigation agency, or the ACRC, and reporters will be thoroughly protected and compensated with rewards and prize.

This Enforcement Decree provides for matters delegated by the Act and other matters necessary to enforce such delegated matters. Specific matters provided for under the Decree are as follows:

First, besides government subsidies, compensation, and contributions as specified in the Public Finance Recovery Act, the types of public funds subject to the Act include compensatory grants, support funds, relief money, pension benefits, payments made for contracting-out of government services, social security benefits, and money or goods, etc. of similar nature.

The budget compilation standard for the State, local, and local education finance that categorizes budget by characters has been referred to for the classification of different public grants, which will be reflected into the tentatively named ‘public finance recovery system management guideline’ to expressly set forth the scope of the State, local and local education finance subsidies and grants, which are estimated at about 214 trillion won.

Second, according to the Decree, those who falsely claim, excessively claim, and improperly use the public funds for other purposes than the indicated ones shall be charged with additional monetary sanctions up to five times, three times and two times the value of their illicit profits, respectively, provided, however, that such additional monetary sanctions may be reduced by administrative authorities to the extent of 50% in the case where such false or excessive claims and the use for other purposes resulted from slight negligence.

In addition, where those who derived illicit profits are already charged with fines, penalties, administrative fines for negligence, or penalty surcharges, or receive dispositions of confiscation or additional collection with respect to their false or fraudulent claims, the administrative authority concerned may reduce or exempt the amount of additional monetary sanctions so as to keep the sum of the said fines or penalty surcharges, etc. and the sanctions from exceeding the value that is five times the value of illicit profits to be recovered.

Third, the Decree also provides that after a deliberative committee’s deliberation, the name, age and address of a false claimant for a large amount of public subsidies and grants*, etc. along with his/her company name, the value of illicit profits and specific statements of imposition of additional monetary sanctions, etc. shall be disclosed in the web page of the responsible administrative authority for one year.

* A person who receives administrative dispositions of additional monetary sanctions twice or more from the same administrative authority for the past three years and the sum of his/her illicit profits amounts to not less than 30 million won.

Lastly, where a reporter of public subsidy fraud cases, etc. receives disadvantageous measures against his/her social position and discriminatory measures that have a negative effect on the working conditions, etc. by reason of reporting frauds, or where a reporter and his/her relatives, etc. are likely to suffer harm to his/her life or body due to reporting, he/she may request the Commission to take measures for a guarantee of his/her status and personal protection.

Moreover, where a report of subsidy and grant frauds leads to a direct recovery of or increase in revenues of the public agencies, a reporter may receive compensation of up to 3 billion won from the Commission.

The Chairperson Pak Un Jong of the ACRC said, “I expect that the implementation of the Public Finance Recovery Act will prevent any leakage in public finances, including subsidy and grant frauds, thereby allowing for such public funds as subsidies, etc. estimated at approximately 214 trillion won to be used more responsibly to achieve policy goals in a more efficient manner,” adding that “the Commission will fully prepare for the enforcement of the Public Finance Recovery Act, including through more fruitful enactment of the Enforcement Decree thereof by actively gathering the public opinions during the legislation pre-announcement period.”