[Invest&Law] Sentence Reduction as Bait, Profit Forfeiture as Shackles... The Dilemma of Korean-Style Plea Bargaining

Supreme Prosecutors' Office Guidelines:
"All Illicit Gains from Unfair Acts Must Be Returned for Non-Prosecution"
Concerns Raised Over Infringement of Courts' Exclusive Authority to Determine Sentences
Calls for Measures to Prevent Side Effects and Improve the System

Crimes related to financial investment, such as market manipulation and unfair trading, continue to increase in the capital market. As unfair trading in the capital market becomes more sophisticated, there are growing limitations to traditional investigative methods, and it takes a long time to crack down on new types of financial crimes, which increases the suffering of victims.

In this situation, the so-called "Korean-style plea bargaining" system, officially known as the "Judicial Cooperation Sentence Reduction System," which was implemented in January last year, was expected to be a welcome relief for both victims and investigative agencies. Under the Capital Markets Act, if a perpetrator involved in representative unfair trading activities-such as insider trading, market manipulation, or fraudulent trading-turns themselves in or provides decisive information, they can be exempted from or receive a reduction in criminal punishment. This was expected to make the process of uncovering crimes easier, as it would encourage offenders to come forward and confess, thereby achieving maximum effect at minimum cost.

However, according to the legal community on September 3, despite such expectations for plea bargaining, the reality has not changed significantly. The main reason is that even if a whistleblower actively cooperates with the investigation, they can only receive a reduction in punishment if they return all the profits gained from the unfair trading. Sentence reduction is only applied if all criminal proceeds are paid back.

The Supreme Prosecutors' Office guidelines state that "the prosecutor may choose not to indict a person who applies for sentence reduction before prosecution if that person makes a direct and essential contribution to uncovering another person's crime and returns all illicit gains obtained from the unfair act." Even in cases where it is particularly difficult to return all illicit gains, non-prosecution may be conditional upon returning them within a specified period, which means there is little benefit for the whistleblower. In other words, there is little incentive to voluntarily confess or provide decisive information about the crime.

Most judicial cooperators are insiders who participated in the crime, making it highly likely that they obtained a portion of the criminal proceeds. The legal community points out that if these individuals are required to return all the benefits they received, their motivation to report will decrease. For the plea bargaining system to become established and more widely used, some argue that clear incentives must be provided to those who report cases. Since the system is still in its early stages, some believe that either partial exemption from confiscation of criminal proceeds or the payment of whistleblower rewards should be considered to remove barriers to reporting.

For example, in cases where someone reports the operator of an illegal sports gambling website, a reward of up to 200 million won is offered. Recently, a citizen who reported an illegal sports gambling operator received a reward of 147 million won.

On the other hand, there are counterarguments that the idea of prosecutors negotiating sentences with criminals, when they are supposed to prove and punish crimes, conflicts with the public's sense of justice and fairness. There is also concern that this system allows prosecutors to infringe upon the courts' exclusive authority to determine sentences for criminals. Since prosecutors hold the power to reduce or mitigate sentences, there is a risk of manipulating or distorting testimony. Without measures or systems in place to prevent such side effects, the introduction of plea bargaining could actually have unintended negative consequences.

One chief judge stated, "It is generally expected that suspects who participated in crimes will rush to provide internal information to investigative agencies, but there are concerns that prosecutors' authority could become excessively broad, as they can influence the level of criminal punishment," adding, "The key to the successful establishment of this system will be how much the negative perception of prosecutors bargaining sentences with criminals can be eliminated."