[Exclusive] Only 7 out of 78 Cases of Embezzlement Over 500 Million Receive Enhanced Punishment... Despite Shareholders' Calls for Severe Penalties, Punishments Are Lenient [Small Shareholders' Tears]③

Full Survey of First-instance Judgments on Embezzlement under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes
Average Embezzled Amount: 1.3 Billion KRW... Average Sentence: 2 Years and 11 Months
35% Released on Probation
Probation Even for 11 Billion KRW Embezzlement... "Shows Remorse"
"Property Crimes Are Essentially No Different from Murder"

Editor's Note402.5 billion KRW. This is the amount of embezzlement and breach of trust disclosed by 29 listed companies last year, during which the government's value-up project was underway to enhance corporate value. Minority shareholders are unprotected and marginalized in crimes occurring within companies. Even if the management commits embezzlement and breach of trust, leading to suspension of stock trading and delisting, minority shareholders cannot monitor these acts in advance nor hold anyone accountable. They have no choice but to bear the losses and wait. Ahead of the regular shareholders' meeting season in March for listed companies, we focus on the tears of minority shareholders excluded from the domestic stock market, which continuously calls for enhancing corporate value.

Are large-scale embezzlement crimes properly punished in Korea? We conducted a full survey of first-instance judgments last year for charges under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement). When embezzlement exceeds 500 million KRW, this law applies, imposing harsher penalties than ordinary embezzlement charges. Although companies, their executives, and shareholders suffered damages due to embezzlement and related crimes, it was confirmed that punishments were lenient.

Minority shareholders opposing the delisting simplification policy held a rally on the 10th in front of the Korea Exchange in Yeouido, Seoul. They called for clearer delisting review criteria, the introduction of differentiated delisting procedures for embezzlement and breach of trust, enhanced transparency of companies and related institutions, and social public discussion to protect shareholder rights. 2025.02.10 Photo by Yoon Dong-joo

On the 3rd, Asia Economy conducted a full survey of 78 first-instance judgments last year for charges under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement), excluding restricted access cases. The total embezzled amount was approximately 103.6 billion KRW, averaging 1.328 billion KRW per case. The average sentence was 2 years and 11 months, which means roughly 38 million KRW paid in penalties per month. There were 28 cases where imprisonment was suspended along with the prison sentence.

The reason for the low sentences in embezzlement crimes is the 'special sentencing factors.' According to the Sentencing Commission, courts may apply reduced sentences for nine reasons, including passive involvement in the crime, a de facto single-person or family company, voluntary surrender, victim's non-prosecution request, or substantial damage recovery. Conversely, courts may impose heavier sentences for five reasons, such as mass victims like shareholders, concealment of criminal proceeds, or particularly egregious methods. In embezzlement cases, there is more room for sentence reduction than aggravation.

Reduced special sentencing factors were applied in 23 out of 78 first-instance judgments. In contrast, aggravated factors were applied in 7 cases. The most common reason for reduction was 'victim's non-prosecution request or substantial damage recovery,' accounting for 15 cases. Next were 'de facto single-person or family company' in 5 cases, 'voluntary surrender or whistleblowing on internal corruption' in 2 cases, and 'solely for company benefit' in 1 case. This indicates that the court judged that the damage from embezzlement and related crimes was effectively restored or that the perpetrator and victim reached an agreement. All 7 cases with aggravated sentences involved egregious criminal methods, including forgery of private and public documents and crimes sustained over a long period.

23 Cases Reduced vs. 7 Aggravated... Even with 14 Prior Convictions and Witness Tampering, Sentence Reduced

In the process of punishing embezzlers, shareholders' damages and petitions for severe punishment were overshadowed by the nine mitigating factors. On February 2 last year, Daejeon District Court sentenced defendant A, charged under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement), to imprisonment in the first trial. A, a company CEO, was accused of embezzling 620 million KRW of business funds in 2019 for personal use. He had 14 prior convictions, showed no remorse, and attempted to tamper with a key witness. Moreover, the company's shareholders demanded severe punishment for A.

Nevertheless, the court applied a reduced sentencing range and sentenced him to 1 year and 6 months imprisonment with 3 years probation and a fine of 50 million KRW. This was because he returned 600 million KRW of the embezzled 620 million KRW to the company. The money was returned in January last year, five years after the crime occurred. Meanwhile, shareholders had to bear the losses entirely.

Even if an embezzler forges and uses private documents to conceal the crime, being a first-time offender favors sentence reduction. On June 28 last year, B, who worked in the accounting team, was sentenced in the first trial for embezzling 970 million KRW by inflating or falsifying accounts. B forged internet banking transfer confirmations to hide the embezzlement. However, the Changwon District Court Geochang Branch did not apply any aggravated special sentencing factors such as egregious criminal methods. The court sentenced B to 4 years imprisonment, stating, "Although B forged and used private documents to conceal the crime, he has no prior criminal record and admits his wrongdoing, which are favorable factors."

Even without applying mitigating or aggravating factors, many sentences are weaker than the sentencing guidelines. On August 22 last year, C, who worked as a labor union branch chief at a hospital, was sentenced in the first trial at Incheon District Court for embezzling about 680 million KRW of union dues over 7 years and 684 instances. The court found no mitigating or aggravating factors and applied the basic sentencing range of 2 to 5 years. However, C was sentenced to only 1 year and 6 months imprisonment, below the guideline range. The court considered that C used a significant portion of the embezzled money for living expenses and frequently returned funds to the union account during the crime period as favorable factors.

Despite Petitions for Severe Punishment, Shareholders' Voices Excluded... Embezzled Funds Used for Stocks, Crypto, Gambling, etc.

Shareholders were excluded from embezzlement trials. On January 20 last year, D was sentenced for violating the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) and the Securities Exchange Act. D was CEO of E, a KOSDAQ-listed company, and embezzled about 7.586 billion KRW by transferring company funds raised through paid-in capital increases in 2008-2009 to paper companies and subsidiaries for withdrawal. Additionally, in May 2009, during the acquisition of another KOSDAQ-listed company F, D embezzled 6 billion KRW of F's paid-in capital and used it to repay debts. After D's crimes, E was eventually delisted, and shareholders petitioned for severe punishment.

However, Seoul Southern District Court sentenced D to 3 years imprisonment with 5 years probation in the first trial. The court explained, "The defendant admits each crime and shows remorse," and "Some of the embezzled funds from E were used to cover losses of E's subsidiaries." Furthermore, "When E was considered dissolved, the CEO and outside directors expressed non-prosecution wishes, and acquaintances including employees during D's tenure petitioned for leniency." Despite shareholders' petitions for severe punishment, D's flight during the warrant review, and prior financial crime convictions including a 2-year prison sentence with 3 years probation in September 2020 for violating the Capital Markets and Financial Investment Business Act, D again received a lenient sentence.

Embezzlers used the stolen money for personal gain. They spent embezzled funds on living expenses, debt repayment, stock and cryptocurrency investments, as well as gambling and gaming. G, who worked as an accountant at a styrofoam manufacturing company, embezzled about 913 million KRW by manipulating client names. G used the money for gambling, gaming, and living expenses. However, Busan District Court applied a reduced sentencing range and sentenced G to 2 years imprisonment. This was because the actual damage was less than the embezzled amount, the victim did not want prosecution, and G had no prior criminal record. G committed embezzlement 729 times from 2018 to 2022.

Criticism that embezzlement and breach of trust crimes harming market order should be severely punished has existed for a long time but has not been reflected. A 2013 thesis by former Dong-A University Law School professor Cheon Jin-ho titled "Sentencing Practices and Improvement Measures for Corporate Crimes" stated, "Appropriate and rational sentencing is essential to ensure fairness and reliability of the entire criminal trial," and explained, "Considering motivation as solely for company benefit and substantial damage recovery as mitigating factors is logically contradictory."

Professor Lee Chang-hyun of Hankuk University of Foreign Studies Law School said, "Voluntary surrender, non-prosecution requests, and substantial damage recovery are valid reasons for mitigation," but also pointed out, "It is problematic that aggravated punishment is not applied for heinous property crimes." He added, "If a victim commits suicide due to property crimes, it may be essentially no different from murder. Severe punishment is necessary for embezzlement crimes."

Series on 'Tears of Minority Shareholders'

"Korea's Capital Market Killed My Younger Brother"
① Trading Suspended Due to Executive Embezzlement... A Family Destroyed by the Capital Market

Over 1 trillion KRW embezzlement crimes in listed companies over 3 years... 402.5 billion KRW last year alone
② Despite Trading Suspensions and Delistings... Embezzlement and Breach of Trust Punishments Are Lenient

▶ Among 78 cases of embezzlement over 500 million KRW, only 7 received aggravated punishment... Despite shareholders' petitions for severe punishment, lenient sentences prevail
③ Full Survey of First-instance Judgments on Embezzlement under the Act on the Aggravated Punishment, etc. of Specific Economic Crimes... Difficult to Punish High-value Embezzlement Crimes

Shareholders Excluded from Shareholders' Meetings... Worries over 'One-way Traffic'
④ Shareholders' Voices Ignored at the 'Flower' of Stock Companies, the Shareholders' Meeting

Embezzlement Punishment Strengthening Stalled... Urgent Need to Solve Information Asymmetry Issues
⑤ Laws Protecting Minority Shareholders as Told by Minority Shareholders and Experts