[Why Is Collection Difficult?] ② The Only Dedicated Department at Seoul Central District Prosecutors' Office Nationwide... Increasing Civil Lawsuit Wins

Editor's NoteRecently, issues of recovering criminal proceeds have resurfaced as crimes such as market manipulation in the cryptocurrency and stock markets and numerous rental frauds causing widespread harm to ordinary citizens have increased. These cases involve identifying, confiscating, and returning criminal proceeds to victims. This article examines the practical challenges obstructing the confiscation of criminal proceeds and asks experts about possible countermeasures.

#The Busan District Prosecutors' Office received full payment of the confiscation amount from Mr. A, who had been ordered to pay approximately 390 million KRW in confiscation in February last year for violating the Attorney-at-Law Act but had not yet paid. Before the trial began, in September 2019, the prosecution filed a petition with the court for provisional seizure of half the share of real estate owned by Mr. A's de facto spouse, Ms. B, and obtained a provisional seizure order. Ms. B then filed a third-party objection lawsuit against the Republic of Korea. In court, the prosecution proved that the real estate was purchased with money earned by Mr. A operating a company under Ms. B's name, effectively making it joint property of the two, and won the case.

Although the prosecution won the third-party objection lawsuit, since the real estate was still registered under Ms. B's name, in March the prosecution filed a creditor's subrogation lawsuit to change the ownership of half the share of the real estate to Mr. A for enforcement of the confiscation. Having been revealed as a co-owner in the previous lawsuit, Mr. A paid the full unpaid confiscation amount on May 17, less than a month after receiving the complaint.

Difficult Creditor's Subrogation and Fraudulent Conveyance Cancellation Lawsuits... Burdensome to Respond

A creditor's subrogation lawsuit is a suit filed by the state, acting as a third-party creditor to collect confiscation money on behalf of the creditor (criminal), who has not exercised the right to claim return of property held under another person's name, such as in a name-trust situation. The state demands the registered owner to transfer or cancel registration. A fraudulent conveyance cancellation lawsuit seeks to cancel acts where the criminal intentionally gifted or sold property to a third party, knowing it would harm the state's confiscation claim.

The problem is that there is no dedicated organization to handle these complex civil lawsuits. Although some lawyers from the Korea Legal Aid Corporation, which represents the state in lawsuits, provide limited support, due to budget constraints, most cases require prosecutors from the investigating prosecutor's office to directly handle civil litigation.

Of course, prosecutors study civil law and civil procedure law during their judicial examination or bar exam preparation and receive civil litigation training during judicial training or after passing the bar exam. However, handling civil trials related to civil matters after years of focusing solely on criminal cases is not as easy as it seems.

Especially in fraudulent conveyance cancellation lawsuits, the claim is only accepted if the recipient of the property from the criminal or subsequent acquirer knew at the time of the transaction that it harmed other creditors. Proving this is difficult. Moreover, there is a statute of limitations: the claim must be made within one year from when the creditor (state prosecutor) became aware of the facts and within five years from the date of the fraudulent act.

An official from the Supreme Prosecutors' Office's Criminal Proceeds Recovery Division said, "Even if a lawsuit is filed, creditor's subrogation lawsuits are difficult because they require proving a name-trust relationship between the criminal and the registered owner, meaning the prosecutor must prove that the property is effectively the criminal's but registered under someone else's name. If the prosecution fails to prove this and loses, it must pay the opposing party's litigation costs. Therefore, creditor's subrogation lawsuits cannot be filed lightly."

He added, "So the alternative is the fraudulent conveyance cancellation lawsuit, which can be filed if the flow of funds can be traced even without proving a name-trust relationship. However, it has limitations, such as the need to prove malice regarding harm to other creditors and dismissal if not filed within the statute of limitations."

That is not all. Even if the prosecution files such complex lawsuits, third parties who received property under a false name from the criminal often file various lawsuits to block confiscation enforcement, such as objections to enforcement under the Civil Execution Act, third-party objection lawsuits, or lawsuits to invalidate seizure orders. In these cases, the prosecution must respond as the defendant and win the lawsuit to enforce confiscation. This is why, despite early provisional seizure procedures, recovering criminal proceeds remains difficult for years.

Seoul Central District Prosecutors' Office's Criminal Proceeds Recovery Division is the Only Dedicated Unit... Other Offices Operate Recovery Teams

Currently, among all prosecutor's offices nationwide, only the Seoul Central District Prosecutors' Office has a dedicated department for recovering criminal proceeds. In early 2018, amid growing public demand to recover illegal proceeds from former President Jeon Du-hwan and Choi Seo-won, a key figure in the Park Geun-hye administration's secret network, the recovery team, which had only two investigators, was upgraded to a division with one chief prosecutor, two prosecutors, and three investigators.

Park Cheol-woo, the inaugural chief of the Seoul Central District Prosecutors' Office's Criminal Proceeds Recovery Division, broke the convention of not attempting provisional seizure without indictment. In September 2018, he proactively pursued recovery by obtaining a provisional seizure order on real estate worth approximately 140 million KRW owned by the operator of 'Soranet,' then the largest adult website in Korea, before indictment, increasing the amount of provisional seizure about tenfold compared to 2017.

However, due to practical limitations such as difficulty expanding the prosecution organization or budget, no other prosecutor's office has established a Criminal Proceeds Recovery Division since. Other offices operate non-statutory criminal proceeds recovery teams without dedicated departments, where 2-3 prosecutors handle criminal proceeds recovery alongside investigation and trial duties. Given this situation, prosecutors tasked with recovering criminal proceeds find it difficult to identify property held under false names and revert it to the criminal's name through civil lawsuits that may take years.

An official from a frontline prosecutor's office lamented, "Each office designates a prosecutor responsible for recovery, but if they belong to, say, the criminal division, they receive relatively fewer cases but still must handle recovery work alongside their assigned cases. Prosecutors in trial divisions must manage recovery while conducting trials, which is very challenging."

There have even been cases where prosecutors from the Criminal Proceeds Recovery Division were dispatched to other investigative units. In October 2021, during the early stages of the Daejang-dong investigation, Yoo Jin-seung, then chief of the Seoul Central District Prosecutors' Office's Criminal Proceeds Recovery Division, and three prosecutors from the division were assigned to the dedicated investigation team for the Daejang-dong development scandal.

Increasing Success Cases of Criminal Proceeds Recovery through Civil Litigation

Despite these difficult conditions, recently, the prosecution has increased successful enforcement of confiscation through active litigation responses.

The Busan District Prosecutors' Office confirmed that Mr. C concealed insurance surrender refund claims by paying 790 million KRW in insurance premiums with criminal proceeds and sequentially changing the insurance contract holder to his wife and sister-in-law. In November 2020, they filed a fraudulent conveyance cancellation lawsuit against Mr. C's wife and sister-in-law and obtained a provisional seizure order on the insurance surrender refund claims. In April this year, they won the entire case. After the appeal period expired and the judgment became final, the prosecution claimed the insurance surrender refund from the insurance company and on the 8th recovered the full 790 million KRW to the national treasury.

There is also a case where confiscation money that had not been enforced for 10 years was recovered through litigation. The Daegu District Prosecutors' Office found a case where a final judgment for about 1.3 billion KRW in confiscation was issued in 2013 but not enforced and filed a creditor's subrogation lawsuit in April last year.

Kim, the head of a violent organization in Daegu, who operated 18 illegal gambling arcades and earned about 1.3 billion KRW in business profits, was indicted in April 2012 for violating the Game Industry Promotion Act and sentenced to four years in prison and about 1.3 billion KRW in confiscation in September the following year. During the trial, the prosecution obtained a provisional seizure order on an apartment registered under Kim's wife's name, but even 10 years after the confiscation judgment was finalized, enforcement had not occurred. The prosecution filed a lawsuit against Kim's wife to cancel the name-trust and transfer ownership back to Kim. Kim's wife claimed she was the actual owner, but the prosecution proved that the apartment purchase price was paid entirely from accounts managing illegal arcade profits operated by Kim and that Kim's wife had no other income, establishing Kim as the true owner. Ultimately, on the 17th of last month, the court ruled entirely in favor of the plaintiff.

There was also an unexpected success related to rising cryptocurrency prices. The Busan District Prosecutors' Office indicted a group who smuggled approximately 40 tons of gold bars worth about 2 trillion KRW by purchasing gold bars in Hong Kong, bringing them into Korea, and then exporting them to Japan via couriers. They received guilty verdicts in 2019-2020. Three members, D, E, and F, were sentenced to prison terms ranging from one to four years and confiscation amounts from 400 billion KRW to 2 trillion KRW. The prosecution applied for provisional seizure on D's Ethereum cryptocurrency holdings and obtained a provisional seizure order from the court in April 2018. At the time, Ethereum was valued at about 550 million KRW, but as its price rose, the court approved a sale order in June 2021, and the cryptocurrency was sold for 4.98 billion KRW, about nine times the original value. Ultimately, in January last year, the prosecution recovered about 5 billion KRW and returned it to the national treasury.

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