US Company Operating in Korea: "Serious Accident Punishment Act Increases Legal Responsibility of Korean Branch Executives" (Comprehensive)

"Corporate Regulation Amendment Could Become a Global Conflict Factor"
"Following Korean Law Is the Principle... Concerns Over Business Contraction"

[Image source=Yonhap News]

[Asia Economy Reporters Hwang Yoon-joo and Cho Hyun-ui] CEOs of American companies operating in Korea have expressed concerns over various regulatory and punitive laws being promoted by the government and ruling party. This stems from the assessment that the business environment has become challenging due to laws such as the Serious Accidents Punishment Act (hereinafter referred to as the Serious Accidents Punishment Act), which is set to be enforced in a year, as well as the amended Fair Trade Act and Labor Standards Act that changed at the end of last year. In particular, they foresee that business activities may be restrained due to the increased level of penalties for CEOs under the Serious Accidents Punishment Act.

AMCHAM: "Corporate Regulatory Amendments Are a Significant Issue for U.S. Companies in Korea"

James Kim, Chairman of AMCHAM, stated on the 22nd during the 'CEO Risks' webinar organized by the American Chamber of Commerce in Korea (AMCHAM) that "Korean executives are required to bear a much higher level of legal responsibility than their American counterparts," adding that "this could be a factor leading foreign companies to withdraw their domestic investments."

He also mentioned, "Conflicts may arise between the CEO of the Korean branch and the CEO of the U.S. headquarters," and "this will even influence whether employees decide to accept the CEO position."

The seminar, attended by CEOs and legal and government affairs officers from over 150 member companies, featured six lawyers from the corporate and labor departments of the law firm Hwawoo, including attorney Shin Sang-heon, who reviewed the amended laws and potential emerging issues, while responding to participants' questions. An AMCHAM official said, "We hold seminars about once every 2-3 weeks, but unlike previous sessions, many CEOs themselves expressed a desire to attend this time," adding, "There is high interest because many laws directly involve CEOs."

Having been constrained by COVID-19 throughout last year, most companies are focusing their management plans this year on recovery or normalization. Meanwhile, from the end of this year, fines for collusion will double, and related laws will be amended to allow dismissed or unemployed individuals to join labor unions. The Serious Accidents Punishment Act holds business owners or management responsible and allows for criminal penalties if they fail to comply. All these measures have received negative reactions even within the domestic business community.

Strengthened Corporate Regulations Increase Legal Liability for U.S. Executives in Korea...Amendments to Fair Trade Act Complicate M&A Strategies

In particular, despite the Serious Accidents Punishment Act being such an important issue that requires mid- to long-term planning, the enforcement decree and other details have yet to be established, leaving foreign companies frustrated over how responsibility will be determined and the extent of preventive measures.

Attorney Park Sung-wook of Hwawoo Law Firm pointed out, "The provisions of the law are ambiguous and open to varying interpretations, which could cause significant confusion in the early stages of enforcement." According to a statistical survey disclosed by Hwawoo, 90.9% of companies oppose this law.

With the law's enforcement scheduled in a year, opposition remains strong domestically, especially among employer groups. Park Jae-geun, Head of the Industrial Research Division at the Korea Chamber of Commerce and Industry, said, "While we agree with the law's intent, it imposes all responsibility for industrial accidents, which arise from complex factors, on companies and applies excessive penalties," adding, "A comprehensive effort including systems for accident prevention, facility investment, education, and awareness change is necessary, and encouragement and motivation should come first."

Concerns were also expressed regarding the amendments to the Fair Trade Act. The amendments significantly strengthen regulations on internal transactions, making corporate spin-offs and mergers and acquisitions (M&A) strategies more difficult and potentially weakening cooperative relationships among affiliates in global competition. The business community is requesting that the amendment exclude "domestic affiliates where an affiliate owns more than 50% of the total issued shares alone," which was newly introduced in the amendment.

This content was produced with the assistance of AI translation services.