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The amended Korean Fair Trade Act (KFTA) includes a provision on compliance program: the current state of CP in South Korea

21, June 2023  by  Suhjung Lee 

On 25th May, the amended Korean Fair Trade Act (KFTA) passed the plenary session of the National Assembly of South Korea including a newly written provision on anti-trust compliance program. Surely, this is a remarkable achievement to the Korean Fair Trade Committee (KFTC) after 20 years of struggle to encourage Korean companies to adopt compliance program.

1. KFTC's Compliance Program Guideline

Korean anti-trust compliance program (hereinafter “CP”) was first introduced by KFTC in 2001, having an aim to reduce violations of KFTA and encourage Korean companies to adopt a well-organised internal compliance system. It’s guideline (a rule) was published providing 8 essential elements (used to be 7) of implementing an effective CP. It also shows the framework of how KFTC evaluates companies CPs. The CP evaluation is specifically held for companies that have applied and KFTA gives ranks to each company based on the result (The evaluation set out in 2006 and the rank ranges from D~AAA). The applicable incentives are then differed by the given ranks.

2. Lack of incentives?

So far, it was simply an advisory for South Korean companies to adopt CP. However, both limited and inconsistent incentives for running an effective CP have failed to draw companies’ attention, and almost neglected.

The major problem of this was said to be that there was no applicable legal provision for KFTC to evaluate companies CP and give substantial incentives. Currently, the strongest incentive would be the exemption of investigation when a company achieves high rank (A~AAA) in the CP evaluation. KFTC used to have an authority to reduce fines depending on a given rank, but it was withdrawn in 2014.

In addition, it was unable for a company to apply the evaluation while it is under an investigation by KFTC. And, it wasn’t that KFTC considers a company’s CP while the investigation is conducted (up until recent years). There are more reasons why CP was not widely accepted by Korean companies, but the lack of incentives and the minimum effort by the government may have generated some sort of distrust among companies toward its concept.

Nevertheless, its importance has been gradually recognised in South Korea recently, thanks to the emergence of the global ESG era. But this then raised a fundamental problem to Korean companies on managing compliance risks.

3. Current state and fundamental problem

Over a long period of time, South Korean companies have developed their own way of managing compliance risks. This, however, inevitably caused some extent of structural silos, especially considering operating a compliance program. The problem first arose when Korean companies had to respond to ESG issues without having an “integrated” compliance system or having an actual experience of running an “effective” compliance program.

What I have noticed during few years is that not many companies in Korea seem to solve the problem. Large companies are not an exception. So, their task, to build an effective compliance program, is to conduct an in-dept company assessment in order to know how the company currently manages its’ compliance risks and drive the best solution that guarantees the effectiveness of the CP.

Well, the problem may not solely be of South Korea as most of companies fear change. But now it became almost a mandatory for Korean companies to run an effective compliance program and if so, it should be effective and efficient.

Thus, this amendment will allow KFTC to give more effort into stabilising CP in South Korea, and hopefully provide strong incentives that could attract more Korean companies to adopt CP. Then we can look forward to Korean companies to be more competitive and accountable in the global market.

*The amended KFTA will be enforced on 20 June 2024

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