Law

Kim Young Ran

2016.10

Kim Young Ran Act_A Bitter Pill for a Sick Society
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The “Kim Young-ran Act” is a policy that is currently one of the most discussed social/political/financial topics in South Korea.

  • The Anti-Corruption and Bribery Prohibition Act, also known as The Kim Young-ran Act, prohibits any person from making a corrupt request to Public Officials. It was established by Korea’s Anti-Corruption and Civil Rights Commissioner, Kim Young-ran with the intention of purging the South Korean government of its ongoing problems with corruption.
  • Civil servants, school teachers and administrators, and others holding public office are now subject to prosecution and criminal penalty for violation of any one of the clauses listed in the Act.

The motive for The Kim Young-ran Act was to punish and prevent corrupt requests and lobbies, which were usually being made over expensive meals or a game of golf.

  • In 2015, South Korea ranked 37th on the Corruption Perceptions Index (a ranking of 0 indicating “very clean” and lower rankings, “highly corrupt”; 1st: Denmark, 8th: Singapore, 16th: US, 18th: Hong Kong and Japan), demonstrating Korea’s deplorable levels of corruption.
  • Of particular interest is the fact that public officers and journalists were among the most corrupt, and their bribing was imposing heavy societal costs.
  • Though Korea has a custom of “treating those to whom one owes a debt with utmost hospitality,” today, this culture has degraded into a debauchery of offering expensive food and drinks as a bribe for requests. In response, The Kim Young-ran Act now obliges individuals to pay the cost of their own meals and no more.

With the aim of reviving the integrity of public offices, the act was first suggested in 2012 and is finally coming to fruition after four years of intense scrutiny and discussion. The act has been enforced starting September, 2016.

  • The Anti-Corruption Act, first proposed in 2012, finally received the approval of the National Policy Committee on January 8, 2015.
  • During the Assembly plenary session on March 3, 2015, of the 247 members present, 228 (92.3%), voted for, 4 voted against, and 15 abstained.
  • Afterwards, following a year and six month-long grace period, the act was enforced on September, 2016.

The Kim Young-ran Act’s core ordinances can be explained by the “3-5-10-100” ($30-$50-$100-$1,000) Rule.

  • $30: a public officer is prohibited from accepting a benefit in the form of food worth $30 or more from a stakeholder (e.g. a reporter will be prosecuted if they accept a dinner worth more than $30 from a business person).
  • $50: a public officer is prohibited from accepting a gift worth $50 or more from a stakeholder
  • $100: a public officer is prohibited from accepting a tribute worth $100 or more from a stakeholder.
  • $1000: even in the absence of expectations for reciprocity, any gift or benefit worth $1000 or more is strictly prohibited (e.g. John, a public officer, is prohibited from accepting more than $1000 from Steve, who is just a personal friend).
  • Those targeted by this legislation are public officials, journalists and reporters, and teachers and school administrators (for both public and private schools), amounting to roughly 4 million people. Korea’s population is about 40 million, so this act will effectively impact 10% of the population.
  • The only exceptions granted by this legislation are for team dinners (e.g. meals funded by the company during a team project) and for other activities intended to boost team morale. That is, The Kim Young-ran Act specifically targets the exchange of meals and gifts between, rather than within, parties.

Among the critics of The Kim Young-ran Act are businesses in the food and agriculture industries, which have expressed concern that this act may worsen the domestic market by reducing demand for food products.

  • According to the Korea Economic Research Institute, The Kim Young-ran Act is estimated to result in an economic loss of 11.6 trillion KRW, especially affecting the restaurant, agriculture, floriculture, golfing, consumer, and distribution industries.
  • The Ministry of Agriculture, Food and Rural Affairs predicts that the act will reduce demand in the agricultural/fishery industry by up to 2.3 trillion KRW, and the restaurant industry by up to 4.2 trillion KRW.
  • The Bank of Korea has recommended that the country be wary of changes in economic growth (or lack thereof) that is likely to result from the reduction in domestic consumption caused by The Kim Young-ran Act.
  • According to a report released by Goldman Sachs, because The Kim Young-ran Act impacts 15% of the Korean workforce, the domestic retail market is also predicted to be hit hard by this act.

However, 70% of Korean citizens believe that the benefits of this act far outweigh the costs, and they have expressed support for this act that will hopefully end corruption “once and for all.”

  • According to the Hyundai Research Institute, there is no hard proof indicating that the act will harm the economy, and consumption is predicted to decrease by 0.86% at most.
  • According to NH Investment and Securities, the number of pre-orders for items worth less than $50 has spiked in department stores throughout the country, and total revenue is predicted to resemble last year’s figures.
  • The Shinhan Investment Corporation claims that though the act may decrease consumption of gifts and restaurant goods, if the surplus expenses are directed towards raising wages, this act will ultimately be beneficial for the economy.
  • According to public opinion polls, 65-70% of Korean citizens are in support of The Kim Young-ran Act and agree with the statement that “the tradition of excessive hospitality has resulted in a culture of a corruption.”

Several societal changes have been emerging as a result of The Kim Young-ran Act, and they have been revealing the winners and losers of this act.

  • Membership-only golf clubs have seen a 20% reduction in reservations, whereas lower-cost, public golf clubs have seen a 50-108% increase in reservations.
  • Previously, there was an average of twenty celebration wreaths adorning the wedding hall of a prosecutor. Now, the average number has shrunk dramatically to four.
  • The number of customers in fine-dining restaurants has dropped by 30-40% whereas numbers have burgeoned in cheaper dining establishments and dining facilities within offices.

In the United States, there is less of an expectation for individuals to give or receive gifts or meals, especially in professional settings. Therefore, there is less concern of public officials accepting bribes in this manner.

  • According to an ex-employee, at PwC, employees rarely exchange meals or gifts in professional contexts (e.g. during a meeting with a client at a restaurant). Even rarer were cases when PwC would pay for the client’s meal. The only exceptions were when the client offered to pay PwC employees as an expression of their gratitude.
  • At PwC, there are only a few types of gifts that are deemed appropriate for exchange in business settings (e.g. sporting game tickets, flowers, etc.) along with strict guidelines for the price of these gifts. Educative sessions to teach company ethics exist as well.

Do you think that The Kim Young-ran Act will harm the domestic economy? Will it be effective in reducing corruption and perhaps becoming a catalyst for policy change? What are some social or cultural externalities that may result from the Act?

Please discuss this topic with your Ringle Tutor. Explain The Kim Young-ran Act and also share your thoughts on American customs in professional relations.

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