"Compliance Teams Needed Even in Large Law Firms"

Published 20 Nov.2023 14:36(KST)

‘SM Enter Sisejojong’ Involved Lawyers 2 Referred to Prosecution
“Need to Establish Internal Control Mechanisms Like General Companies,” Pointed Out

Two lawyers affiliated with a major law firm have been referred to the prosecution with an indictment opinion on charges related to the 'SM Entertainment stock price manipulation' case. This has sparked calls for compliance organizations within law firms as well. Although large law firms have repeatedly grown in terms of human resources and revenue scale, their management systems, such as internal controls within the organization, remain weak.

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

According to the Capital Market Special Judicial Police (Special Judicial Police) of the Financial Supervisory Service on the 15th, among the six people referred to the prosecution with an indictment opinion for violating the Capital Market Act in connection with Kakao's alleged stock price manipulation of SM Entertainment, two lawyers from a major law firm were included. It is known that they provided investment advisory services to Kakao and Kakao Entertainment during the SM Entertainment acquisition battle. Earlier in August, the Special Judicial Police conducted a forced investigation on Kakao's key executives and simultaneously raided the law firm to which these lawyers belong.

As lawyers have recently been subject to suspect investigations by investigative agencies one after another, there are growing calls for major law firms to establish internal control bodies similar to those of general companies.

Typically, when employees or executives of a company are investigated by investigative agencies, the company initiates audits on the individual employees, conducts organizational-level fact-finding, and implements compliance system education to prevent recurrence. However, major law firms still rely on ad hoc controls simply because they consist of hundreds of lawyers.

A lawyer from a major law firm explained, “Law firms emphasize corporate compliance management, but in reality, even large law firms that have grown into huge organizations do not have well-established compliance organizations. There is a strong perception that they are merely a collection of individual lawyers, so when misconduct occurs, the matter is often discussed at the operations committee on a case-by-case basis or quietly resolved by accepting resignations.”

A corporate lawyer said, “In general companies, even if an employee is summoned only as a witness for investigation, the audit office starts an audit. One might question whether a compliance monitoring body is necessary in a law firm composed of lawyers, but lawyers can also be pushed to the limit when dealing with clients.” He added, “It is a crucial time for Korean law firms to have an internal self-purification body if they want to enter the global market.”

In fact, overseas global major law firms have their own internal compliance organizations. DLA Piper’s Office of General Counsel (OGC) is responsible for internal control systems and compliance training. They also initiate audits when necessary. This department independently assigns lawyers who exclusively handle compliance tasks within the firm. They serve as a kind of ‘in-house counsel’ within the law firm.

A compliance specialist lawyer said, “One approach is to establish a compliance organization directly under the firm’s overall representative, granting it the authority to discipline and monitor compliance for all employees, including lawyers within the firm.”