In a Dilemma, Ministry of Land, Infrastructure and Transport Must Compensate If Unable to Prove Use of Confidential Work Information

No Provisions for Profit Recovery or Land Confiscation in Current Public Housing Special Act Penalty Regulations Beyond Imprisonment and Fines
May Violate Public Notice Act and Obstruction of Official Duties, but Recovery Not Applied Even Then
Government Policy Credibility Falls if Development District Designation Is Canceled
Loss of Momentum for Expanding Housing Supply

[Asia Economy reporters Kangwook Cho and Mowon Moon] Despite the scandal involving Korean Land and Housing Corporation (LH) employees suspected of land speculation worth over 10 billion won, controversy over the possibility of recovering profits is expanding, leading to growing criticism toward the government. If profit recovery fails, it would effectively mean the government acknowledges the speculative actions of public enterprise employees. To prevent this, one option is to cancel the designation of the district altogether, but this would undermine the credibility of the government's policy to expand supply and could even cause the policy momentum to collapse. The Ministry of Land, Infrastructure and Transport, the responsible authority, thus finds itself in a dilemma with no easy way out.

◆ The key issue is proving the use of confidential information obtained through work = The core question is whether the profits generated from the land acquired by these individuals can be recovered. Furthermore, there is interest in whether the land itself can be confiscated. The critical point is whether the suspects used ‘work-related confidential information’ to seek speculative gains.

According to investigations by the Ministry of Land, Infrastructure and Transport and LH, 13 employees acquired 12 parcels of land in the Gwangmyeong-Siheung district between 2018 and 2020, but none of them had worked in the new candidate site-related departments or the Gwangmyeong-Siheung project headquarters since 2015. Currently, the Public Housing Special Act stipulates that using information learned during work for purposes other than intended, or providing/leaking it to others, is punishable by up to five years imprisonment or a fine of up to 50 million won, but there are no provisions for profit recovery or land confiscation.

LH employees, as public institution workers, are subject to the Anti-Corruption Act. According to Article 86 of the Anti-Corruption Act, public officials who use work-related confidential information may have their financial gains confiscated in addition to imprisonment or fines. However, proving this is not easy. There can be a gap of up to three years between the district designation process, which began last month, and the timing of land acquisition. However, violations such as breaching the Farmland Act or obstructing official duties by deception may apply. Even in these cases, there are no penalties for land confiscation or profit recovery.

Attorney Jaegwon Lee of Dongin Law Firm pointed out, "Ultimately, it will come down to whether the information was obtained during work processes," but added, "From a public interest perspective, it is highly likely that the speculation was based on internal information."

◆ LH announces "strong measures to prevent recurrence" but may have to compensate even for sapling planting = On the 4th, LH issued a public apology and stated that if illegal activities are confirmed, disciplinary and legal actions will be taken, along with plans to establish strong measures to prevent recurrence. However, this has been criticized as a mere after-the-fact remedy. Even if a full investigation of the entire 3rd New Town is conducted, under the government’s fast-track policy, if land compensation procedures proceed as planned, there is no legal basis to exclude the land acquired by LH employees under suspicion of speculation from land-for-land compensation. As a result, they may have to be compensated even for the saplings they planted.

Attorney Kanghoon Lee of Deoksu Law Firm emphasized, "The problem is that if there is no internal pressure within public institutions, monitoring and supervisory systems tend to become lax," adding, "While individual punishment is important, this incident should serve as a turning point to eliminate the practice of using internal information."

Meanwhile, among the lands purchased by LH employees, the only ‘building + land’ parcel at 645-3 Garim-dong, Siheung City, saw its official land price per 3.3㎡ surge by 29% from 3.08 million won in 2019 to 3.97 million won in 2020. During the same period, the nationwide official land price rose by 5.95%, and Gyeonggi Province’s average increased by 5.48%. Additionally, the estimated speculative gain on a field (area 5,905㎡) next to Gyeonggi Automotive Science High School in Mujinae-dong, Siheung City, is about 1.3 billion won.