[Why Is Recovery Difficult?] ③ Bizarre 'Crime Proceeds Concealment'... "Increase Budget and Personnel, Introduce Independent Forfeiture System"

Hundreds of Kilograms of Gold Bars Hidden on Rooftop Floor... Also Bought Ex-Girlfriend's House
‘Independent Forfeiture System’ Implemented in US, Germany, etc... Seizure of Criminal Proceeds Before Guilty Verdict

Editor's NoteRecently, issues related to the confiscation and recovery of criminal proceeds have resurfaced as a hot topic amid a series of market manipulation cases in the cryptocurrency and stock markets, as well as numerous victims of jeonse fraud targeting ordinary citizens. This article examines the practical challenges hindering the confiscation of criminal proceeds and seeks expert opinions on possible countermeasures.

Prosecutors are struggling to track down criminal proceeds that have been embezzled from company funds and then concealed by transferring them to family members or third parties. Using nominee accounts to divert criminal proceeds is a common tactic, and sometimes the proceeds are hidden at the registered addresses of others or gold bars are split and stored at family members' homes to cleverly evade investigations.

The problem lies in the fact that assets found with great difficulty cannot be immediately reverted to the state treasury. For assets held under nominee names or third parties, enforcement of confiscation orders cannot be executed solely based on criminal judgments that have sentenced and finalized confiscation; a separate civil lawsuit is required. Voices are emerging calling for measures to reduce the costs and time involved in this process.

A representative solution is the 'independent confiscation system,' which allows for the confiscation of criminal proceeds even before a final guilty verdict is issued, in cases where the criminal has fled abroad, died, or holds assets under nominee names. Currently, bills to amend the 'Act on the Regulation of Concealment of Criminal Proceeds' to introduce the independent confiscation system are pending in the National Assembly.

Embezzlement of Over 220 Billion Won from Osstem Implant... Gold Bars Hidden in Tenant's House

Lee, who was the head of the financial management team at Osstem Implant, was sentenced to 35 years in prison and ordered to pay approximately 115 billion won in confiscation at the first trial for embezzling over 220 billion won of company funds.

According to Lee's first trial judgment, he concealed the embezzled company funds using an extraordinary method. Lee purchased 851 kg of gold bars to hide the money, secretly storing 354 kg on the rooftop floor of his residence. Of that 354 kg, 100 kg was hidden at his younger sister's house. The remaining 497 kg was diverted to an officetel registered under his name.

During this process, Lee persuaded the tenant living in his officetel not to change their registered address, offering to cover all moving expenses if they relocated to another nearby officetel he owned. After the tenant moved out, Lee hid gold bars in the officetel previously occupied by the tenant.

Because the registered resident was a different tenant, investigators found it almost unimaginable that gold bars could be hidden in that officetel.

Additionally, Lee paid approximately 3.8 billion won as a 10-year deposit and management fees for a resort under his wife's name and covered apartment purchase costs for his sister-in-law and brother-in-law. He also concealed ownership of luxury watches, construction costs for his wife's detached house, imported cars, and bonds by using nominee names.

Lee and his family argued during the trial that they were unaware the assets were embezzled company funds and that confiscation of assets not owned by Lee should not be allowed, but the court rejected this claim.

Lee Mo, who is accused of embezzling 221.5 billion KRW of company funds from Osstem Implant, is being transferred from the Seoul Gangseo Police Station to the prosecution. Photo by Kang Jin-hyung aymsdream@

Purchased Ex-Girlfriend's House with Embezzled Funds... Also Deposited Money in Overseas Law Firm

Jeon and his brother, former employees of Woori Bank, are on trial for embezzling 70 billion won of company funds. They used nominee accounts and other means for money laundering, spending the funds on debt repayment, business capital, real estate, vehicles, art purchases, and overseas travel expenses. They even installed a cypress wood bathtub in their parents' home using the embezzled money.

Jeon reportedly paid for his ex-girlfriend's house purchase and even settled her credit card bills. However, during the prosecution's investigation, the ex-girlfriend confessed that she knew the house funds Jeon paid were embezzled company money. Even if the real estate registration lists a third party as the owner, confiscation can be enforced if the property was purchased with criminal proceeds.

There have also been cases where assets were hidden overseas despite confirmed confiscation orders. Park Hong-seok, former CEO of Monuel, who was sentenced to 15 years for an astronomical fraud loan of about 3 trillion won by inflating import-export payments for home appliances, hid 2.53 million USD (approximately 2.875 billion won) in a U.S. law firm.

The prosecution confirmed that Park attempted to retrieve the deposit through a Hong Kong paper company account and applied to the court for seizure and collection of the claim for the deposit's return. The court accepted the application, and through negotiations with the U.S. law firm, the entire deposit was entrusted to a Korean court.

Independent Confiscation System for Swift Recovery of Criminal Proceeds... Implemented in the U.S., Germany, and Others

Discussions on the 'independent confiscation system,' which allows confiscation of criminal proceeds even in cases where trials are impossible due to the criminal fleeing abroad or death, or where no final guilty verdict has been issued, are ongoing. However, legislation has been delayed due to concerns over violating the presumption of innocence when third parties unknowingly own the assets.

Recently, there has been growing support for recovering criminal proceeds in cases like the so-called 'Nth Room' incident, where the proceeds are identifiable but the criminals are difficult to identify, or where prosecution is impossible due to death or unknown identity of the criminal.

An official from the Supreme Prosecutors' Office's Criminal Proceeds Recovery Division stated, "Under current laws, if a criminal leaves behind massive criminal proceeds and dies, the state cannot claim those proceeds. The system where confiscation ends upon death, as in the case of former President Chun Doo-hwan, must change. If a criminal embezzles billions and then dies, they become a revered ancestor in their family," criticizing the current system.

He added, "The unreasonable structure where criminal proceeds are fully inherited by the criminal's family must be changed. Even if it is clear that the assets are criminal proceeds, if the criminal cannot be prosecuted or a final guilty verdict is not issued, the prosecution has no way to seize them. Criminal proceeds must not be possessed by the criminal or their heirs and must be confiscated," he said.

Currently, several bills to amend the Act on the Regulation of Concealment of Criminal Proceeds based on the independent confiscation system have been proposed in the National Assembly. These bills allow confiscation and seizure even without prosecution or a guilty verdict if the criminal proceeds are acquired by a third party, if the criminal has died, and if the conditions for confiscation are met.

The independent confiscation system is already implemented in countries such as the U.S., Germany, and Australia. Germany's Criminal Code explicitly states that confiscation is possible if the conditions are met, even without prosecution or a guilty verdict, and the Code of Criminal Procedure provides detailed procedures for independent confiscation. The U.S. employs a 'civil forfeiture system' to confiscate assets suspected of being illegal or related to crime regardless of criminal prosecution or punishment.

Independent Confiscation System Useful for Crime Suppression... Courts Cautious About Adoption

Supreme Court, Seocho-dong, Seoul.

In 2020, Lee Wankyu, then Chief Researcher at the Institute for Legal Culture and Rule of Law, emphasized the necessity of the independent confiscation system in a commissioned report titled 'Study on the Independent Confiscation and Seizure System.' In the paper, Lee pointed out that if criminals cannot be convicted, gaps in blocking criminal proceeds may arise, proposing the independent confiscation system as a legislative solution to fill such gaps.

In a phone interview with this publication, Lee said, "Seizing the benefits of crime itself is useful for suppressing crime. If criminals commit crimes and flee, allowing them to use criminal proceeds is meaningless. Even if they escape, confiscating and seizing those assets is essential for crime prevention," he emphasized.

However, the Court Administration Office holds that introducing the independent confiscation system requires ▲ establishing provisions to resolve consistency issues with the current legal system, which treats confiscation as an ancillary punishment ▲ clarifying the grounds for independent confiscation ▲ and providing sufficient procedural rules under the Criminal Procedure Act to implement this in trials.

In South Korea, confiscation and seizure can only be executed when combined with criminal punishment, and under current criminal law, confiscation and seizure are ancillary punishments, so enforcement requires a finalized guilty verdict.

Regarding this, Lee said, "Clinging to existing criminal law theories leads to no progress. If the prosecution were to confiscate and seize arbitrarily, that would be problematic, but the proposal is to do so under court judgment, so I don't understand the concerns. There may be worries about infringement of defense rights if the criminal is on the run, but that can be fully contested in the main trial. The important thing is to prevent the use of criminal proceeds in the first place," he stressed.

Prosecutor General Lee Won-seok also discussed mandatory independent confiscation with Raja Kumar, Chair of the Financial Action Task Force (FATF), in April this year. FATF is currently pushing to revise its recommendations to mandate independent confiscation for member countries.

There is also an argument that confiscating criminal proceeds in white-collar crimes like embezzlement is effective for crime prevention. Seung Jae-hyun, Senior Research Fellow at the Korea Institute of Criminology and Justice Policy, said, "In white-collar crimes, increasing sentences is necessary, but rooting out and confiscating criminal proceeds has a stronger crime suppression effect. It's not about whether the criminal serves 10 or 20 years; if economic criminals feel that even a spoon from their home can be taken away, the deterrent effect is much greater," he said.

Seung emphasized that manpower and budget support are essential for smooth confiscation and seizure. He said, "All crimes have become transnational, so trials for recovering criminal proceeds are not only held domestically but also in countries like the U.S. or Ecuador, requiring knowledge of their judicial systems. With the current prosecution organization, there are limits. For example, the U.S. Department of Justice's Asset Forfeiture and Money Laundering Section is extremely specialized and well-organized," he explained.

He continued, "After confiscation and recovery of criminal proceeds, a recovery fund should be established to support those working in this field, for example, by providing education and capacity building through the fund. Discussions on these aspects need to be more active, and for that, manpower and budget must be increased. This is not a matter of choice but a necessity," he added.