Foreign businesses in South Korea have warned that a new workplace safety law due to come in force next year will undermine the country’s appeal as a destination for overseas companies.
The American, European and British chambers of commerce in Seoul said the Severe Accident Punishment Act, which will take effect in January, has exacerbated longstanding concerns about criminal penalties for even minor regulatory infractions.
Several chief executives whose companies have been investigated for transgressions ranging from employment law violations to misfiling of customs declarations have been subjected to criminal prosecution, travel bans and the threat of prison or deportation.
Kaher Kazem, chief executive of General Motors Korea, was banned from leaving the country without permission between 2018 and 2020 after he and four other executives were indicted over allegations that 23 workers had been kept on irregular contracts for too long. The executives have denied wrongdoing and GM has contested the charges.
Under the new law, senior executives could be held criminally responsible for a range of accidents and work-related injuries and illnesses unless they can demonstrate compliance with a long list of criteria. Convicted executives face a fine and a minimum one-year prison sentence.
“CEOs in Korea — whether foreign or Korean — are personally liable for so many things that are beyond their control,” said James Kim, chair of the American Chamber of Commerce in Korea. “They are asking why they should be taking on all these personal risks to come and work here.”
“The law applies equally to Korean and foreign companies,” said Christoph Heider, president of the European Chamber of Commerce in Korea. “But, for example, to violate customs regulations here is a criminal act, which puts importers at a higher risk.”
Foreign executives describe the regulatory regime as a highly complex, opaque and unpredictable.
“The laws are not clear and the punishments are severe, so it’s no surprise people are concerned,” said a British CEO of the Korean subsidiary of a European manufacturer. “It’s not just that I’m not sure how regulations are going to be applied — I consult my lawyers and they’re not sure either. It’s scary.”
The legislation is also opposed by local employer bodies, including the Korea Enterprises Federation, which describes it as the “many uncertainties and ambiguities” surrounding the criteria executives are expected to fulfil.
But advocates say the law is necessary because South Korea has one of the highest industrial death rates in the developed world, with more than 2,000 work-related fatalities reported last year, according to the labour ministry.
“Companies should invest more in safety, not just pursue profits relentlessly,” said Kim Woo-chan, a business professor at Korea University. “If they implement safety measures thoroughly, this will clearly help prevent serious work injuries.”
Jeffrey D Jones, an American lawyer and chair of Amcham’s board of governors, said the reliance on criminal prosecution was imposing unnecessary costs on the South Korean economy.
“I regularly hear from multinational corporations that they spend more on compliance in South Korea than in any other jurisdiction,” said Jones, who has practised in the country for more than 40 years.
“There’s just way too much criminal liability in Korean law — whether it’s maintenance issues, environmental issues, employment issues, customs issues, or tax issues. Korea and its economy would be much better served if it adopted a much wider range of administrative fines instead.”
Foreign business groups in South Korea have long complained of the country’s lingering protectionism, while the country’s inheritance tax laws are another source of unease.
Beyond a $550,000 exemption, anyone who dies while registered as a South Korean resident is liable to a tax rate of 40-60 per cent on the entirety of their worldwide assets. The implications of this law were brought home to many foreign executives after Samsung’s ruling Lee family had to pay an $11bn tax bill after the death last year of former chair Lee Kun-hee.
“Chairman Lee’s passing meant that a lot of foreign executives woke up to their tax liabilities here,” said James Kim.
“Many believe that they better time their death away from Korea to ensure that their worldwide assets are not taken away from their beneficiaries.”
Additional reporting by Song Jung-a
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