[Invest&Law] Prosecutors Lose Meal Allowance, Unable to Conduct Raids... National Tax Service Leading Corporate Affairs

Prosecution's Investigations Stalled Due to Budget Cuts
Business Community on High Alert Over National Tax Service Activities

The prosecution, with its special activity expenses (teukhwalbi) and specific task expenses (teukgyeongbi) completely cut, is virtually at a standstill. Concerns about an investigation gap are emerging as the personnel reshuffle season approaches.

According to the Supreme Prosecutors' Office on the 12th, the number of search warrant requests by the prosecution in January decreased to about one-third compared to the same month last year. The prosecution is reportedly refraining from forced investigations unless the case is urgent, as it struggles even with basic expenses such as transportation costs, equipment usage fees, and travel and meal expenses for prosecutors and investigators. The prosecution has traditionally covered basic investigation expenses?including costs for confidential investigations, intelligence activities, search and seizure, and questioning of suspects or witnesses?from special activity and specific task expenses.

Supreme Prosecutors' Office. Yonhap News Agency

At the Seoul Central District Prosecutors' Office and the Financial and Economic Crime Division, there is a backlog of economic crime cases such as slush funds and tax evasion using nominee accounts, as well as cases transferred from the National Tax Service and the Financial Supervisory Service. Inside the prosecution, a sentiment has formed around the leadership expressing embarrassment over the situation where investigations that should be conducted cannot be properly carried out due to lack of investigation funds. A former chief prosecutor turned lawyer conveyed the internal atmosphere, saying, “Currently, the prosecution is handling mostly cases referred to the police unless they are special cases.”

For example, a chief prosecutor at the Financial and Economic Crime Division reportedly postponed requesting a search warrant even in cases where additional search and seizure were unavoidable. This is because executing the warrant would be difficult even if it were issued. The investigation team is known to have taken the stance of “Since the National Tax Service conducted a tax audit last year and the investigation is ongoing, let's wait for the National Tax Service's materials.”

An official at the Seoul Central District Prosecutors' Office lamented, “It is difficult even to execute meal expenses, so we are selectively initiating forced investigations,” adding, “Following the impeachment of prosecutors and the loss of related budgets, the organization's morale has dropped significantly.” Another prosecution official pointed out, “There is a risk that we may have to give up search and seizure due to lack of essential investigation expenses,” and criticized, “This situation benefits the suspects.”

Unlike the prosecution, whose operational scope has been significantly narrowed due to the full cut of special activity and specific task expenses, the National Tax Service, which has maintained its budget, is actively engaging in corporate audits and increasing its presence.

According to a comprehensive report by the Legal News, the business community, which has been paying close attention to the prosecution's special investigation trends, is now keenly watching the National Tax Service's movements. This is because the National Tax Service, which has not experienced cuts in special activity and specific task expenses, is vigorously conducting regular and special tax audits as usual. Some say that the National Tax Service, led by the Seoul Regional Tax Office's Investigation Division 4, known as the “corporate grim reaper,” is even conducting investigations that would normally be the prosecution's responsibility.

The Seoul Regional Tax Office's Investigation Division 4 began a special tax audit on Korea Asset Trust on the 4th. This is a follow-up measure after executives and employees were arrested and indicted on charges of pursuing private gain by receiving bribes from service providers. The audit is reportedly examining whether there are illegal funds flowing in and out of the company. In November last year, a tax audit was also initiated on Korea Land Trust, which is under investigation by the Seoul Central District Prosecutors' Office Anti-Corruption Investigation Division 3 (Chief Prosecutor Lee Seunghak).

Last month, the special tax audit on DL Group affiliates, including DL E&C, was converted into a tax evasion investigation. The DL Group's founding family is suspected of creating slush funds. A tax evasion investigation proceeds when intentional tax evasion is discovered during a tax audit. Besides the DL Group, the Seoul Regional Tax Office's Investigation Division 4 is reportedly focusing on examining whether there have been illicit fund transactions and tax evasion between the founding families and related parties of several large corporations, including Hyosung Heavy Industries, Manna Corporation, The K-Tech, Golfzon Newdin Group, and RF Semi.

The business community is not hiding its unease. Korea Asset Trust, which is currently under the tax audit spotlight of the Seoul Regional Tax Office's Investigation Division 4, is reportedly monitoring the authorities' movements through a lawyer who is a former chief judge. A representative from a major corporation said, “We are putting in twice the effort to respond to both the National Tax Service and the prosecution.”

Woo Bin, Legal News Reporter

※This article is based on content supplied by Law Times.