More courts considering intent in corporate trials

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More courts considering intent in corporate trials

A recent analysis looking into the convictions and sentences handed to Korea’s top executives showed that the judiciary was more lenient toward businessmen when breach of trust charges was linked to management decisions.

From October to December 2015, the Seoul High Court tried three businessmen on embezzlement and breach of trust charges, as well as accounting fraud and tax evasion for some of them.

Former STX Group Chairman Kang Duk-soo was the first to be tried in October 2015, followed by Woongjin Group Chairman Yoon Seok-keum, who was convicted two months later, and CJ Chairman Lee Jay-hyun in December. The court handed down suspended three-year prison terms to both Kang and Yoon.

Lee, however, faced a far different outcome. The court ordered him to be jailed for two years and six months, despite his deteriorating health due to a kidney transplant.

Kang was convicted of embezzling 55.7 billion won ($46.91 million) and incurring 284.1 billion won worth of losses on the company. Still, he was acquitted for amassing 2.3 trillion won through accounting fraud and taking out loans totaling 900 billion won with falsified records.

Lee was convicted of embezzling 96.3 billion won and incurring 56.9 billion won worth of losses on his company. He was also convicted for tax evasion.

But while both men were convicted of embezzlement and breach of trust, their intentions made the difference in their sentencing, a court official said. In Lee’s case, the high court ruled that a tax evasion conviction alone was heavy enough for him to be incarcerated.

“Kang was considered as having made unlawful management decisions to rescue affiliates from crisis,” the source said. “But the court apparently decided that Lee had committed the crimes for his own interest.”

Korea’s judiciary showed particular leniency toward domestic tycoons for financial crimes during the early 2000s and in the aftermath of the 1997 foreign exchange crisis.

Chaebol owners were generally given three-year suspended terms with five years’ probation - a practice that almost became the norm in the legal community.

That changed, however, on the eve of the 2012 presidential election. The Seoul Western District Court sentenced Lee Ho-jin, the former Taekwang Group chairman, to four years and six months in prison, bucking previous trends.

It was also particularly surprising because another top executive had just received a suspended sentence.

In January 2012, Dam Chul-gon, the chairman of the Orion group, was given a three-year suspended jail term with five years’ probation for embezzlement and breach of trust. He was also convicted of using company money to purchase expensive paintings to decorate his home.

Insiders in the legal community said the Taekwang case was affected largely by public sentiment, based on economic democracy pledges by presidential candidates. Since then, more businessmen have been sent to prison. Hanwha Chairman Kim Seung-youn was convicted and jailed in August 2012, while SK Chairman Chey Tae-won was sentenced in January 2013. Tongyang Group Chairman Hyun Jae-hyun, meanwhile, was ordered to serve seven years in prison.

That course remained steady until about two years ago, when the court system adopted a new approach, starting with a Supreme Court ruling in September 2013 ordering the Seoul High Court to reconsider its sentencing for Kim.

The Hanwha chairman was convicted by a district court in August 2012 for breach of trust, incurring 300 billion won in losses for the group by illegally using corporate funds to support failing affiliates. He was ordered to serve four years in prison and jailed immediately after his sentencing. However, he was released after 545 days, when the Seoul High Court overturned its ruling and handed down a suspended three-year term instead.

At the time, the court said the case was different from typical financial crimes in which corporate tycoons use company money for their own gains.

Sources from the judiciary said the intent made the difference.

“When a businessman was prosecuted for breach of trust or embezzlement, the leniency of giving a suspended jail term was decided based on whether it was for the sake of the businessman’s personal interests or whether it was a management decision gone wrong,” a source from legal community said.

Scholars and those in the business community are now demanding that executives be given immunity for their management decisions even though they might incur losses for the companies.

“Punishing a businessman for the outcome of a management decision only discourages his activities,” said Bae Sang-kun, vice president of the Korea Economic Research Institute. “It won’t be helpful to the economy.”

BY IM JANG-HYUK, SER MYO-JA [ser.myoja@joongang.co.kr]

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