[Invest&Law] Discussion on Abolishing 'Breach of Trust' Crime Shakes Corporate Trials... Possibility of Acquittal for Hyunbum Cho and Wonsik Hong

Business Community Welcomes Move
Legal Circles Raise Concerns Over Fairness
Calls for Ban on Retroactive Legislation
Complex Legal Disputes Entangle Breach of Trust and Embezzlement Cases

As the government and the ruling party move to abolish the crime of breach of trust under the Criminal Act, attention is also focused on how this will affect ongoing trials involving Cho Hyunbum, Chairman of Hankook Tire & Technology, and Hong Wonsik, former Chairman of Namyang Dairy Products. Since the legal requirements for this crime would be eliminated, even cases already indicted could be ruled as “no crime to punish,” opening the possibility of a dismissal verdict.

According to the legal community on November 5, major figures currently on trial for breach of trust charges include Chairman Cho, former Chairman Hong, former Democratic Party lawmaker Lee Sangjik, and former Gangwon Province Governor Choi Moonsun. Chairman Cho was sentenced to three years in prison in the first trial for charges including embezzlement and breach of trust, and the appeal trial is underway. Former Chairman Hong was also indicted for embezzlement and breach of trust, was released on bail after being detained, and is currently undergoing his first trial.

In addition, former lawmaker Lee is on trial for allegedly giving preferential treatment to former President Moon Jaein’s former son-in-law by hiring him at Thai Eastar Jet (on charges of occupational breach of trust and bribery), and former Governor Choi faces charges of occupational breach of trust related to the Chuncheon Legoland development project. These cases could also be affected by dismissal if the breach of trust crime is abolished. If the crime is repealed, under the principle of legality, prosecution cannot be maintained and these cases could end in dismissal without substantive trial.

The legal community is divided on the issue. Some argue that, given the controversy over “tailor-made legislation” for President Lee Jaemyung’s Daejang-dong case, a non-retroactivity clause should be included to prevent fairness issues. Article 1 of the Criminal Act stipulates that “if, after the commission of a crime, a law is changed so that the act no longer constitutes a crime, the new law shall apply.” In principle, if the breach of trust crime is abolished, even indicted cases are dismissed.

However, if the National Assembly includes a proviso in the supplementary provisions stating “does not apply to cases indicted before enforcement,” current cases would not be affected. Even in this case, complex legal disputes are expected. Since the current breach of trust crime is closely linked to charges such as occupational embezzlement, some predict that abolishing only the breach of trust crime will not be enough to clear all charges.

For now, the business community is welcoming the move to abolish the breach of trust crime. An industry representative said, “Prosecutors have often criminalized management decisions that should be civil disputes, discouraging boards of directors from making decisions on new investment products.” Over the past ten years, prosecutors have indicted more than 700 breach of trust cases annually, about half of which were related to corporate management decisions.

A corporate restructuring attorney commented, “In the mid-2000s, whenever a leveraged buyout (LBO) structure was arranged, it would automatically be framed as ‘breach of trust.’ The ambiguous nature of the breach of trust crime means there is little disagreement in the legal community about its abolition, and the right direction is to establish additional legal safeguards to protect shareholder interests.”