Police Agency's Two-Month Special Crackdown on Jeonse Fraud... 348 Arrested, 34 Detained

Arrests Increased 5.7 Times Compared to Last Year
91 Landlords and 104 Brokers
Permanent Cooperation System Established with Ministry of Land, Infrastructure and Transport

[Asia Economy Reporter Seongpil Cho] Mr. A began purchasing villa properties in the Seoul metropolitan area from February 2020, where the jeonse (long-term lease) price was higher than the sale price. Tenants who were unaware of the market prices stamped their contracts. Essentially penniless, Mr. A increased his owned villas one by one through this method. The so-called ‘gap speculation’ led him to acquire 52 villas by July of this year. The deposits received from tenants amounted to 10.3 billion KRW. Unable to return the jeonse deposits from the start, Mr. A disappeared as contract expirations approached, and the police launched an investigation, arresting him this month.

The National Police Agency’s National Investigation Headquarters announced on the 26th that, as an interim result of the ‘Nationwide Jeonse Fraud Special Crackdown’ launched in July, they arrested 348 suspects involved in zero-capital gap investments and other jeonse frauds, with 34 of them detained. Compared to the same period last year, the number of arrests increased by 5.7 times, and detentions increased about 12 times. A National Investigation Headquarters official said, "Even considering that the special crackdown is in its early stages, the enforcement results are relatively high," adding, "This is judged to be the result of strengthened cooperation with the Ministry of Land, Infrastructure and Transport, the establishment of a dedicated investigation headquarters, and concentrated investigative efforts for an all-out response."

Among the suspects arrested in this special crackdown, six were building owners and 91 were landlords. There were also 105 fake tenants involved in embezzling loan funds. Additionally, 104 real estate agents or brokerage assistants were caught. By crime type, the most common was false guarantee insurance fraud involving the embezzlement of jeonse loan funds, with 185 suspects. Thirty suspects were involved in non-return of deposits such as ‘empty shell jeonse’ cases, and 86 were arrested for violations of the Real Estate Agent Act. The National Investigation Headquarters also revealed that investigations are ongoing nationwide for a total of 518 cases involving 1,410 suspects. In particular, 34 major cases involving excessive Housing and Urban Guarantee Corporation (HUG) subrogation payments or multiple victims are being directly investigated by each provincial police agency.

The police reported smooth cooperation with the Ministry of Land, Infrastructure and Transport. Last month, they received requests for investigation and data from the Ministry, including 13,961 cases from the Housing and Urban Guarantee Corporation, and have initiated investigations on 6,113 cases involving 23 suspects. The remaining 7,848 cases are being analyzed and reviewed for additional preliminary investigations by each provincial police agency. A National Investigation Headquarters official stated, "We plan to establish a permanent cooperative system through a business agreement with the Ministry of Land, Infrastructure and Transport to share information on jeonse fraud and strengthen investigative coordination."

Efforts to recover damages are also ongoing. Recently, the Anti-Corruption Investigation Unit of the Busan Police Agency obtained a pre-indictment seizure order from the court for 450 million KRW of criminal proceeds in a nationwide first for a jeonse fraud case. A National Investigation Headquarters official explained, "Until now, it was believed that jeonse fraud damages had to be returned to victims, making state confiscation or seizure impossible, but after various legal reviews, we separately applied the crime of forgery of private documents and obtained the seizure order."

Earlier, on July 25, the National Police Agency established a dedicated investigation headquarters led by the head of the Investigation Bureau of the National Investigation Headquarters to intensify the crackdown on jeonse fraud. Each provincial police agency also formed its own task force (TF), with 296 dedicated investigation teams and 1,681 officers participating nationwide. The police are particularly focusing on seven types of jeonse fraud: zero-capital/gap investment, ‘empty shell jeonse,’ false disclosure of real estate rights, unauthorized contracts impersonating actual owners, contracts exceeding delegated authority, false guarantees/insurance, and illegal brokerage.

Eradicating jeonse fraud is also the number one public promise of Police Commissioner Yoon Hee-geun, who took office last month. Upon receiving his appointment on the 10th of last month, Commissioner Yoon defined jeonse fraud as ‘economic murder’ and ordered countermeasures. Since then, the police have established a dedicated investigation headquarters for jeonse fraud, launched special crackdowns, and continued intensive investigations into jeonse fraud offenders, including those involved in empty shell jeonse. The dedicated investigation headquarters plans to extend this special crackdown until January next year.