[Why Is Asset Recovery Difficult?] ① The Long and Arduous Road of Asset Recovery... Prosecutors Filing Civil Lawsuits

Editor's NoteRecently, issues of recovering criminal proceeds have resurfaced as crimes such as price manipulation in the cryptocurrency and stock markets and numerous rental frauds causing widespread harm to ordinary citizens have increased. These cases involve confiscating or reclaiming illicit gains and returning them to victims. This article examines the practical challenges hindering the confiscation of criminal proceeds and asks experts about possible countermeasures.

On the 8th, the Criminal Division 1-3 of the Seoul High Court ruled that there was no problem with the prosecution's execution of the confiscation order on approximately 7.5 billion KRW from the public auction proceeds of forest land in Osan City, which was owned by the family of the late former President Jeon Du-hwan. Kyobo Asset Trust, which was entrusted with the land, had filed an objection to the execution in 2016, which was dismissed after seven years.

Besides the objection to the execution, Kyobo Asset Trust also filed a lawsuit against the prosecution in 2017 to invalidate the seizure order, and in 2019, it filed a lawsuit demanding the cancellation of the distribution of 5.5 billion KRW from the public auction proceeds of three parcels of Osan forest land by the Seoul Central District Prosecutors' Office.

Regarding the former, in July last year, the Supreme Court concluded that the forest land was a nominee asset of former President Jeon and that the trust company was aware of this circumstance, thus ruling that the prosecution's seizure order was valid. However, in the latter case, although a favorable ruling for the prosecution was made in the first trial in April last year, Kyobo's appeal has led to a second trial pending.

The lawsuit to cancel the distribution of public auction proceeds was filed by Kyobo against the Korea Asset Management Corporation. The prosecution participated in the trial as an auxiliary party on the defendant corporation's side, with a prosecutor from the Seoul Central District Prosecutors' Office's Crime Proceeds Recovery Division (Chief Prosecutor Im Se-jin) directly handling the lawsuit and securing a favorable judgment.

Confiscation Execution Rate Based on Amount Below 1%

According to statistics from the Supreme Prosecutors' Office on the 12th, from 2018 to last year, the number of seizure and confiscation preservation cases ranged from about 2,400 to 2,800 annually, averaging around 2,500 cases. However, the amount of confiscation preservation funds varied significantly by year, ranging from 1.1357 trillion KRW (2019) to 5.9543 trillion KRW (2021).

Meanwhile, during the same period, the actual confiscated amounts after final judgments were 110.3 billion KRW (6,252 cases) in 2018, 182.4 billion KRW (5,868 cases) in 2019, 124.4 billion KRW (5,662 cases) in 2020, 122.1 billion KRW (5,877 cases) in 2021, and 100.9 billion KRW (5,889 cases) in 2022.

However, the execution rate relative to the total confiscation target amount, including unpaid confiscations from previous years, was only 0.41% in 2018, 0.66% in 2019, 0.41% in 2020, 0.39% in 2021, and 0.32% in 2022.

The execution rate based on the number of cases each year was around 15-17%, but the significantly low rate relative to the amount is due to the accumulation of large unpaid confiscation amounts from punitive confiscations (confiscations imposed regardless of criminal proceeds) that are practically impossible to execute.

A representative from the Crime Proceeds Recovery Division of the Supreme Prosecutors' Office said, "There are two types of confiscation: general profit deprivation confiscation and punitive confiscation. The unpaid confiscation amount related to the punitive confiscation in the Daewoo accounting fraud case exceeds 20 trillion KRW, and the Busan gold smuggling case amounts to about 2.1 trillion KRW."

In fact, the confiscation target amount, which was about 2.693 trillion KRW in 2018, increased to approximately 3.138 trillion KRW last year.

Excluding cases of large unpaid confiscations that are practically impossible to execute would raise the actual execution rate, but even considering this, the prosecution's confiscation execution rate remains quite low.

Additionally, even when the prosecution succeeds in executing confiscation, the reality that national taxes or tax claims must be deducted first according to relevant laws, and only the remaining amount can be confiscated, is another practical reason why the confiscation rate is difficult to increase.

Supplementary Punishment of Guilty Verdicts... Limited Confiscation Targets

To recover criminal proceeds, a confiscation order must first be separately imposed and finally confirmed in a criminal trial. Unlike the United States, which adopts an independent forfeiture system allowing confiscation without a final guilty verdict, the current legal system treats forfeiture as a supplementary punishment, a type of penalty, and confiscation is a concept based on forfeiture.

An official from the Supreme Prosecutors' Office said, "Under current law, the scope of property crimes subject to confiscation is quite limited. Exceptionally, forfeiture and confiscation are possible for embezzlement, breach of trust, and certain methods of fraud such as criminal organizations, quasi-deposit schemes, multi-level marketing, and voice phishing, but even then, the restrictive condition that 'it is recognized that victim recovery is extremely difficult' must be met."

The Act on the Regulation of Concealment of Criminal Proceeds defines in Article 8, Paragraph 1, the following as criminal proceeds subject to confiscation: (1) criminal proceeds, (2) property derived from criminal proceeds, (3) criminal proceeds related to concealment, disguise, or receipt of criminal proceeds, (4) property generated by the criminal acts in (3) or compensation obtained from such acts, and (5) property obtained as profits or rewards from the properties in (3) or (4).

However, Paragraph 3 of the same article states, "Notwithstanding Paragraph 1, property that is criminally victimized property cannot be confiscated," thereby declaring that, in principle, forfeiture or confiscation is impossible in property crimes where there are victims.

However, Article 6 (Special Cases on Crime Victim Property) Paragraph 1 of the Act on Special Cases Concerning the Confiscation and Recovery of Corrupt Property provides an exception: "If criminal proceeds or corrupt property derived from criminal proceeds are crime victim property and it is recognized that victim recovery is extremely difficult because the victim cannot exercise property return claims or damage claims against the offender, forfeiture and confiscation may be imposed." Paragraph 2 of the same article states, "Crime victim property confiscated or forfeited under this Act shall be returned to the victim."

Nominee Assets Cannot Be Executed with Criminal Judgment... Civil Litigation Required

A confirmed guilty verdict ordering confiscation is not the end. To execute confiscation, there must be nominee assets where the registered owner in official records is a third party, but the actual owner is the criminal, and this fact must be provable.

A prosecutor in charge of criminal proceeds recovery at a local prosecutor's office said, "It is rare for criminals to hold criminal proceeds in their own name. Therefore, to execute confiscation, we must find assets hidden under third-party names one by one."

Finding nominee assets deliberately hidden by criminals is difficult, but even if found, execution is not immediately possible. While criminal judgments ordering confiscation are recognized as execution titles under civil execution law for assets in the criminal's name, the Supreme Court's position is that confiscation cannot be immediately executed on nominee or third-party assets using the criminal judgment alone.

Therefore, after initiating seizure or provisional seizure procedures to prohibit disposition of nominee or third-party assets found by prosecutors, they must file creditor subrogation lawsuits or fraudulent conveyance cancellation lawsuits and win to restore the ownership to the criminal's name first.

An official from the Supreme Prosecutors' Office said, "When criminals who have been ordered confiscation lie and claim that nominee assets are theirs, a protracted lawsuit begins. As seen in the former president's case, there are various ways for the opposing party to contest confiscation against the state (prosecution), and unless the prosecution responds and wins each case, further confiscation execution is impossible."

The prosecution explains that only after overcoming the long civil litigation process over several years can the goal of recovering criminal proceeds be reached.