Squid Game of Compliance for Korean Chaebols and Its Implications


Post By: Prof. Jaemin Lee[1] & Joe Cho, Esq.[2]

In his book “No Freedom without Regulation,” Harvard Law Professor Joseph Singer advances the argument that there is no such thing as a market without law; in fact, the free market can only exist and thrive when it functions in compliance with regulatory rules as enshrined in enactments, edicts and ordinances at a variety of levels. These rules set a minimum set of normative standards for a free and democratic society where each constituting member is entitled to dignity, equality and to mutual respect.

Undoubtedly, in today’s society, corporations are a key market player. Following Professor Singer’s logic, these entities are expected to go about their commercial activities and routine transactions in a compliant manner lest the very underpinnings of the free market, in which they rightfully operate for the purpose of realizing profits, be jeopardized. Couched in this normative and policy framework, the importance of regulatory compliance is self-evident and cannot be emphasized enough. In reality, moreover, regulatory compliance is an existential must, not a mere option at the whim of market participants, in the face of stiff sanctions that may await the rogue entity in the event of non-compliance. In the context of the Republic of Korea (“RoK”), whose economy is still largely dominated by Chaebols or family-fun business conglomerates, regulatory compliance is often perceived by Chaebols as a cost to be borne in carrying on business not only locally, but also in various offshore jurisdictions in which they regularly transact.

  1. Anatomy of Chaebols

According to the latest press release by the Korean Fair Trade Commission, a list of top thirty Chaebols as of May, 2020 (“List”), is tabulated as follows:

Headquartered in the RoK, each Chaebol engages in robust profit-generating activities and a wide variety of related transactions both in and outside of the RoK. For instance, the registered office of Samsung Electronics Co., Ltd. (“SEC”), which forms the flag ship entity of Samsung Group topping the List, is in the suburban city of Suwon, RoK. SEC carries on Consumer Electronics as well as Information Technology and Mobile Communications businesses and boasts a total of 244 subsidiaries world-wide. In addition, SK Group, third on the above list, commands approximately 30 affiliates in the United States alone, and the group’s businesses run the gamut of energy, life sciences, advanced materials, mobility, and semiconductors industries.

While pursuing the objective of pecuniary gains and attendant business growth, it is axiomatic that these corporate titans need be on all fours with the law and regulatory rules, as any material foul play in the process may draw enforcement scrutiny by applicable authorities with a potential risk of stiff sanctions against them. In terms of statutory framework bearing on such regulatory compliance, article 542-13 of the Korean Commercial Code, the law governing commerce in the RoK, recommends that listed companies with total assets of KRW500 billion or more as of the end of the immediately preceding fiscal year put compliance guidelines and procedures in place and ensure management that is compliant with such substantive and procedural protocols. In furtherance of this regulatory mandate, the Board of Directors of each affected public entity is encouraged to appoint at least one Compliance Officer (“CO”) who acts as management’s sounding board and assumes overall responsibility for legal and regulatory oversight over the entity. Despite this statutory backdrop and heightened emphasis on regulatory compliance, recent statistics show that the status of compliance among affected public entities is far from perfect. In fact, as demonstrated below, close to 40% of such entities are yet to implement a compliance officer system in alignment with the Korean Commercial Code as of 2019.

2. Challenges of Offshore Compliance

Given their worldwide operations as noted above, Chaebols face compliance issues not only locally, but also globally. One of the most prominent and thorny challenges in this regard can be complying with the Foreign Corrupt Practices Act (FCPA) of the United States, which is dubbed as “the most widely enforced anti-corruption law in the world.” In our article, at least in the context of the defense industry, we note that top U.S. defense contractors seek to enforce the FCPA by including an agreement provision that binds both U.S. party and non-U.S. party to the FCPA including certain Korean Chaebols such as Hanwha. Such compliance-related practice runs the risk of usurping the jurisdictional sovereignty of the foreign state to which non-U.S. contractors belong. This concern has become more acute recently due to increased application and enforcement of the FCPA in extraterritorial contexts.  To curb jurisdictional usurpation, a more sustainable, global application of the FCPA requires a state-to-state bilateral agreement that specifically addresses the subject of anti-corruption and compliance, as well as related enforcement cooperation. For more details about this topic and reform suggestions, please refer to our article.


[1] Ph.D., LL.M., LL.B. (Seoul National University); LL.M. (Georgetown University Law Center); J.D. (Boston College Law School).  Professor of Law, School of Law, Seoul National University, Seoul, South Korea.  The author can be reached via e-mail at jaemin@snu.ac.kr.

[2] A corporate lawyer and writer in the Republic of Korea.