"Korea May Also See 370 Billion Won Payouts" ... Cap on Whistleblower Rewards Scrapped, Up to 30% to Be Paid

FSC Overhauls Reward System for Reporting Stock Price Manipulation and Accounting Fraud

Financial authorities have decided to abolish the cap on rewards paid to whistleblowers who report stock price manipulation or accounting fraud. Instead, they will pay up to 30% of the illicit gains and fines that are detected and recovered. This effectively opens the way for cases in Korea similar to that of the United States, where a whistleblower was awarded as much as 370 billion won.

On February 25, the Financial Services Commission (FSC) announced that it will pre-announce legislation until March 7 on amendments to the Enforcement Decrees and subordinate regulations of the Capital Markets Act and the External Audit Act containing these measures. The key points of the amendments are to ▲completely abolish the cap on whistleblower rewards, ▲pay rewards of up to 30% of the illicit gains and fines that are detected and recovered, and ▲strengthen cooperation mechanisms so that rewards can also be paid when reports are filed with other administrative agencies such as the National Police Agency. Following the necessary procedures, the amendments are expected to take effect as early as the second quarter of this year.

Currently in Korea, even if a person reports stock price manipulation or accounting fraud that leads to illicit gains amounting to hundreds of billions of won, the reward is capped at 3 billion won for unfair trading and 1 billion won for accounting fraud. In response, the FSC has decided to make clear once again the Lee Jaemyung administration’s firm policy of “stock price manipulation and accounting fraud mean total ruin” by completely abolishing the reward ceiling.

An FSC official said, “Compared with overseas examples, the reward ceiling in Korea has been too low, so insiders have not had sufficient incentive to come forward,” adding, “We will provide compensation that is sufficient relative to the risks associated with whistleblowing.” The aim is to ensure that the larger the misconduct, the more substantial the compensation to the whistleblower.

In the case of the U.S. Securities and Exchange Commission (SEC), for cases where penalties and fines exceed 1 million dollars (about 1.33 billion won), whistleblowers can receive up to 30% of the recovered illicit gains as a reward. In the past Ericsson case, the SEC paid the whistleblower approximately 279 million dollars (about 370 billion won).

The FSC has likewise decided to set a maximum of 30% as the benchmark while revising relevant rules so that rewards are paid in proportion to the illicit gains and fines that are detected and recovered. Based on this, the final reward will be calculated according to the whistleblower’s contribution. A minimum reward has also been established. Even when the illicit gains and fines are small, whistleblowers will receive 5 million won for unfair trading cases and 3 million won for accounting fraud cases. The same amounts may be paid even when no fine is imposed, if the need is recognized.

The cooperation framework among relevant agencies will also be strengthened so that whistleblowers can receive rewards regardless of where they file their reports. Until now, in principle, rewards could not be paid if reports were not made or received through the FSC, the Financial Supervisory Service, the Korea Exchange, or the Korean Institute of Certified Public Accountants. Accordingly, the FSC plans to amend the relevant provisions to provide a legal basis for paying rewards even when cases are transferred or information is shared by other administrative bodies such as the National Police Agency and the Anti-Corruption and Civil Rights Commission.

The key issue is funding. The FSC is reviewing a plan to establish a fund financed by collected fines, from which rewards would be paid. A separate legal basis is required to create such a fund. According to the FSC, from 2021 to February 2026, the number of reward payments related to unfair trading and accounting fraud was 13 and 35 cases, respectively. The total reward amounts were 630.25 million won (an average of 48.48 million won per case) for unfair trading and 2.6099 billion won (an average of 74.57 million won per case) for accounting fraud. Based on the FSC’s own simulations, the total amount of rewards for future accounting fraud reports is estimated to increase by three to four times.

An FSC official said, “Through powerful incentives that can awaken dormant insiders, we will induce structural early detection of criminal acts and create an opportunity to completely eradicate the distorted perception that ‘if you get caught, you just pay a fine; if you do not get caught, you hit the jackpot,’” adding, “We will ensure that whistleblowers do not suffer disadvantages and that they can receive protective measures under relevant laws and the Act on the Protection of Public Interest Whistleblowers.”