Companies should not be immune

The business community is calling for the end of criminalization of corporate malfeasance or misfeasance. It claims the grounds for regulations are too comprehensive and abstract, hampering business managers in launching new businesses in fear of becoming criminals upon failure. But this is only an excuse to gain immunity for for-profit business schemes. The tort law must exist to protect the interests of investors and shareholders. It in fact should be toughed not scrapped.

Under the criminal law provision on malfeasance, anyone violating his or her official duty to gain personal wealth or causing losses to another by persuading investment faces a jail term of up to five years or a maximum fine of 10 million won ($8,245). The sentence becomes heavier when subject to the Additional Punishment Law on Specific Business Crimes for profit gains of more than 500 million won.

The grounds for the crime are unequivocal and detailed. The crime has existed even before the criminal law was established. Malfeasance is indisputably outlawed in Germany and Japan. France not only punishes malfeasance but also abuse of corporate assets. Various Supreme Court precedents provide the specific grounds for application of the law.

The Constitutional Court already upheld the validity of the act of punishing malfeasance, saying that it cannot be deemed excessive when wrongdoings have been thoroughly and reasonably studied, and that the Supreme Court only makes strict judgment when it deems business decisions were made with different intentions.

Critics of the law cite the ambiguity of its application in the cases of a company causing losses to investors and shareholders through risky venture. They argue that a group executive that oversees a number of affiliates would not have made investment in a certain company with the intention of causing harm and therefore should not be punished for the act. They claim that business activities could be dampened due to excess regulation on management decisions.

But the criminal law only punishes “intended” malfeasance. State prosecutors and courts do not find illegality in nonfeasance, a failure in business ventures and decisions that result in losses for investors and shareholders. The wrongdoing must fit the general criminal definition of intent and motive as stipulated by the German and Japanese laws.

In fact, many executives gain immunity in seeking profit for the owner family and relatives even when it leads to losses for investors by claiming the act was made upon a business judgment.

Although many argue that the high ratio of non-guilty sentences in malfeasance charges underscore the ambiguity of the law, the act serves to protect the corporate executives more than investors.

Judgment on wrongdoing can be difficult as business and investment techniques and types become more and more complex and unfamiliar. If the law is scrapped, executives could be more reckless in profit-seeking and escape liability by claiming the act came from business judgment while investors and shareholders lack understanding of the risks to the new ventures.

The Constitutional Court already ruled that the liability charge on malfeasance was valid. Raising questions goes against the public sentiment.

Translation by the Korea JoongAng Daily staff.

*The author is a lawyer and head of the law firm Moonmoo.

by Cho Soon-yeol