[Common People Crying Over Financial Crimes] ① Corruption Property Forfeiture Act Missing 'Jeonse Fraud'... "No Way to Recover"

Police Agency Seizes and Recovers Only 280 Million Won Before Prosecution in Jeonse Fraud Cases
Consideration of Including 'Fraud' in Anti-Corruption Seizure Law

On the 28th of last month, Mr. A, a man in his 30s who was renting a townhouse in Michuhol-gu, Incheon, took his own life. He was a victim of the so-called ‘Incheon Construction King,’ who owned about 2,700 low-income housing units in the Incheon area and committed a lease fraud worth around 12 billion KRW, and he had not received a single penny of his lease deposit back.

Real estate fraud and virtual asset crimes targeting low-income people continue, but it has been found that even when the perpetrators are caught, the victims rarely recover their lost assets properly. Low-income people who lost their lease deposits due to lease fraud and ended up homeless are a typical example.

Lease fraud, known as the so-called 'Villa King' case, has erupted nationwide with amounts reaching hundreds of billions of won. However, from January last year to the end of this month, the police have confiscated or seized only 16 cases before indictment for lease fraud crimes, totaling just 280 million KRW. According to data submitted by the National Police Agency to Rep. Woo-taek Jeong of the People Power Party earlier this month, there were 426 victims of lease fraud identified by the police in Korea in 2021, and almost all of them?416 victims?did not receive all or part of their deposits back.

Lease fraud is classified as fraud, making confiscation and seizure itself impossible. The few cases where confiscation and seizure were carried out were those where the police applied under charges such as 'forgery of private documents' and managed to recover crime damages with difficulty. Even when investigative agencies intervene, recovering damages for low-income victims is not easy. The Anti-Corruption Investigation Unit of the Southern Gyeonggi Provincial Police Agency investigated a case last month involving a landlord and a real estate agent colluding in a ‘kan-tong’ (empty shell) housing lease fraud, where the damage amounted to 1.75 billion KRW, but only 40 million KRW was preserved through seizure. This result was obtained only after two applications following the prosecutor’s refusal to request seizure.

The legal community’s judgment is not much different. In a 2020 lease fraud trial at the Incheon District Court, the first trial dismissed the compensation claim of the claimant. In the second trial, the prosecutor argued that forgery of private documents, use of forged private documents, and fraud are separate crimes in substantial concurrence, and since profits were generated from forgery and use of forged documents, those profits should be considered criminal proceeds and must be confiscated due to their organized nature. However, the court ruled that since the documents were forged as a means of committing fraud, it is reasonable to regard the assets obtained as proceeds from the fraud crime itself, and the Supreme Court upheld the same decision.

‘Corrupt Property Confiscation Act’ Has a ‘Loophole’... “Legislative Supplement Needed”

Experts point out, “Financial crimes targeting low-income people are difficult to confiscate and seize before indictment, so damage recovery is poor and slow,” adding, “This problem arises because fraud is not included in the current Corrupt Property Confiscation Act.”

The Corrupt Property Confiscation Act defines criminally obtained assets as those acquired from victims through embezzlement, breach of trust, and specific fraud crimes (organized crime group fraud, quasi-deposit investment fraud, multi-level marketing fraud, telecommunication financial fraud). Lease fraud, for example, falls under ‘general fraud,’ making confiscation and seizure difficult.

Experts emphasize the need for legislative supplementation, considering the increase in financial crimes targeting low-income people.

Kim Ye-rim, lead attorney at Law Firm Simmok, said, “Lease fraud, a representative financial crime targeting low-income people, is a vicious organized crime with damage amounts reaching hundreds of millions of won. If it is designated as subject to confiscation and seizure before indictment under the Corrupt Property Confiscation Act, it would greatly help in compensating victims.”

Lee Chang-hyun, professor at Hankuk University of Foreign Studies Law School, said, “General fraud crimes are so common that including all cases under the Corrupt Property Confiscation Act could lead to excessive law enforcement. However, since the damage from low-income lease fraud is severe enough that President Yoon Suk-yeol has emphasized it, I believe the law should be amended to cover at least some limited cases.”

Seo Ji-won, attorney at Law Firm Naran, advised, “Currently, fraud is not included in confiscation and seizure, which is a systemic problem. If legal amendment is difficult, making insurance mandatory for lease contracts, which currently is not available, could be an alternative.”

The National Police Agency’s National Investigation Headquarters announced that it is working to expand investigative personnel for financial crimes targeting low-income people. Woo Jong-su, head of the National Investigation Headquarters, said, “We will focus on practical support and damage recovery for crime victims.” A police official stated, “Recovering criminal proceeds is as important as catching the perpetrators. By promptly preserving criminal proceeds, we will strive to restore the property damage suffered by low-income people as much as possible.”