To Apply the Telecommunication-Based Financial Fraud Refund Act to Investment Scams,
the Existence of a "Quid Pro Quo Relationship" Is Key
Clear Limitations Remain Despite Regulatory Guidelines
Active Discussions in the National Assembly on Amending Laws or Proposing New Legislation
The Financial Supervisory Service has opened a path for victims of investment fraud to receive relief, but it has been found to be insufficient to prevent increasingly sophisticated investment scams. Some experts argue that in order to provide greater relief to victims and to prevent crimes, it is necessary to revise existing laws or enact special new legislation.
According to the financial sector on May 14, the Financial Supervisory Service presents the concept of a "quid pro quo relationship" as the standard for applying the Act on the Refund of Damages from Telecommunication-Based Financial Fraud to investment scams, in its "Reference Points for Application of the Telecommunication-Based Financial Fraud Refund Act by Type of Investment Fraud." Clause 2, Item 2 of the Special Act on Prevention of Telecommunication-Based Financial Fraud and Refund of Damages states, "Acts disguised as the provision of goods or services are excluded." Last year, the Supreme Court ruled that if there is no quid pro quo relationship between the goods or services and the assets taken from the victim, the case should be considered telecommunication-based financial fraud.
Previously, courts tended to exclude illegal "leading room" fraud or crimes using fraudulent exchanges from the scope of the law, considering them as acts disguised as the provision of goods or services. In contrast, the Supreme Court stated, "Since the funds sent by victims were not fees for investment advisory services, but rather the investment itself, this does not fall under the exceptions of the refund act." For example, if a fraud victim transfers the investment amount itself to the scammers after being deceived by promises of returns, this is not considered a fee paid in exchange for investment advice, and thus there is no quid pro quo relationship. Furthermore, since these funds are immediately transferred to the scammer's account, a quid pro quo relationship cannot be established. In simple terms, if money is sent as a fee in expectation of actual investment returns, the Telecommunication-Based Financial Fraud Refund Act does not apply; if not, the act can be applied.
However, although these guidelines have been established, they do not guarantee perfect relief for investment fraud victims or complete crime prevention. The Supreme Court ruling only opened the way for the law to be applied, but investment fraud has not been explicitly added to the list of crimes covered by the Telecommunication-Based Financial Fraud Refund Act. Additionally, since the Financial Supervisory Service is an enforcement agency and not a legislative body, it is difficult for it to require financial institutions to forcibly implement the guidelines. In fact, the official title of the guideline is "Reference Points for Application of the Telecommunication-Based Financial Fraud Refund Act by Type of Investment Fraud," and it specifies that each financial institution may operate autonomously, indicating a lack of enforceability.
As a result, discussions are underway in the National Assembly to revise existing laws or to create new legislation. There are two main approaches to revising the law. One is to delete Clause 2, Item 2, which has been problematic in the Telecommunication-Based Financial Fraud Refund Act. The other is to regulate investment fraud through the "Act on Regulation of Unregistered Fund-Raising Activities" (Unregistered Fund-Raising Activities Act). For the former, both Lee Inyoung of the Democratic Party of Korea and Lee Junseok of the Reform Party have each submitted amendment bills. Lee Inyoung argues that the law needs to be amended to prevent investment fraud, while Lee Junseok believes it is necessary to prevent fraud in secondhand transactions.
However, there are two disadvantages to deleting the clause. According to a report reviewed by the National Policy Committee, the responsible standing committee, although the Supreme Court ruled that investment funds fraudulently obtained using private home trading system (HTS) programs constitute telecommunication-based financial fraud, types such as misappropriation of investment transaction fees are still excluded from the scope of the refund act. In the case of voice phishing (telephone-based financial fraud), urgent responses are required due to large withdrawals in a short period, and the establishment of the crime is relatively clear as it is a unilateral act of fraud. In contrast, in secondhand transaction fraud or investment fraud, it is difficult for financial institutions to immediately determine whether fraud has occurred. The same issue arises when regulating through the Unregistered Fund-Raising Activities Act. There are also concerns that systems such as payment suspension could be abused to resolve personal disputes arising in ordinary secondhand transactions, rather than actual fraud.
To regulate increasingly sophisticated fraud crimes, there are also discussions about enacting a "Multi-Victim Fraud Prevention Act." The focus of the law would shift from crackdown and apprehension to prevention and blocking, featuring temporary measures such as suspending suspicious transaction accounts and preemptive actions like blocking the use of phone numbers associated with fraud risk.
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