2006Do1813 Violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes

by the Supreme Court of Korea

Justices Park Il-whan (Justice in Charge), Kim Yong-dam(Presiding Justice), Park Si-whan, Kim Nung-whan

Main Issues

1. Whether handing in financial statement prepared following the revised accounting standard constitutes a fraud where following the previous accounting standards was required
2. Methods for approving the causal relation between the act of deception through the submission of false financial statements and the loan decision by financial institution
3. In case where the financial institution that granted payment guarantee on the bonds issued by the stock company agrees to redeem them at the request of the company and grant payment guarantee on newer bonds issued by the company and considered that money as the payment for the redemption of the former bonds, the elements for the causal relation between the payment guarantee on the new bonds and the act of deception
4. In case where the financial institution that has granted payment guarantee on already issued company bonds guarantees newly issued company bonds in order to secure the fund for the payment, whether it could be deemed as "exchange of money"
5. In case where a stock company receives payment guarantee on its bonds by deceiving a financial institution, the amount of the profit that the company acquires through the process (=The equivalent to the principal of the company bonds that were the object of the original payment guarantee)
6. Whether a person who has stored funds owned by multiple companies without distinguishing the shares, embezzled part of the fund, and whether the multiple companies shall all be deemed as victims of the crime of embezzlement(affirmative)
7. Essential conditions for the crime of evasion of forcible execution
8. Representative of a company's act to store part of the monetary sources owned by the affiliates of the Group in the drawer of the master bedroom of his residence or safe only constitutes part of the act of embezzlement and shall not be acknowledged as the "act of hiding" in a crime of forcible execution.
9. Whether a person who deals with another party's work who is the main offender in malfeasance in office is required to have authority over that work in relationships with third parties (negative) and whether an act of regularly paying a member of the management who never conducts any actual work of the company according to the decisions in the shareholders' meeting or a board of directors is justified (negative)
10. Whether "the right to investigate" of Article 21-2 (7) of the former Depositor Protection Act shall include a "right to request the submission of documents" or a "right to request presence"
11. The Standard of proof and place of the burden of proof where a loan was given by a financial institution (=prosecutor)
12. Whether an act of loaning money shall constitute a crime of malfeasance in office, when loaning did not involve any movement of capital and was no more than a change of debtors on paper (negative)

Summary of Decision

1. The Act on External Audit of Stock Companies stipulate (Article 13 Section 3) that a stock company as provided in Article 2 of the above Act shall prepare financial statements according to accounting standards in accordance with Article 13 Section 1, and provides that an act of preparing and disclosing false financial statements by violating the above accounting standards as subject to various kinds of administrative sanctions and criminal punishment, so a financial institution that review a loan application by a stock company stipulated in Article 2 of the above Act, unless under special circumstances, shall believe that the company's financial statements of a certain fiscal year was prepared according to the accounting standards that apply to that fiscal year. Therefore, in preparing the financial statements for the fiscal year whose accounting standards have later been revised, for a stock company to apply the revised accounting standards in advance to hide net losses for the period that would have been disclosed if the previous accounting standards had been applied, therefore to prepare the financial statements to show that there have been net profits during the period, without clarifying it in the footnote, but submit such false financial statements to a financial institution, could make the financial institution misunderstand that the above financial statements were prepared according to the previous accounting standards that should be applied to the fiscal year in question and as a result the net profits were generated during the period, which shall be deemed to be an act of deception that causes confusion of the financial institution about the financial situation of the company during the fiscal year. The above might not change even if the revised accounting standards have been improved to reflect the financial situation of the company more accurately, and even if the revised accounting standards have been in place since the above act, it shall not constitute the case where the law has amended after a crime where Article 1 Section 2 of the Criminal Code applies.
2. If a financial institution believed that net profits were generated during a certain period according to the previous accounting standards due to the financial statements prepared and submitted as above and as a result decided to give a loan, and if the financial institution knew at time of loan review that the financial statements were prepared as above to hide the net losses that would have been disclosed if the financial statements were prepared according to the previous accounting standards then such loan would not have been granted, the causal relation between the act of deception through the submission of false financial statements and the loan decision is acknowledged regardless of the intention and the capability of the company to pay back the loan and whether a collateral has been provided or not (refer to Supreme Court Decision 2002Do7262 delivered on April 29, 2005 et al.), and it shall not be deemed differently even if the financial institution would have discovered the above accounting practice if it had closely analyzed the submitted financial statements. In addition, even if a loan could have been granted to the above company in the red according to the usual loan standard of a financial institution, it shall not be deemed to break the causal relation between the act of deception through the submission of false financial statements and the loan decision, but whether the causal relation is broken or not shall be looked into after appropriately considering and assessing negative impact on the credibility evaluation that would have been caused if the fact had been disclosed that the company had submitted financial statements that had been prepared to show as if the company had been in the black to hide the situation that it had actually been in deficit.
3. If the financial institution that granted payment guarantee on the bonds issued by the stock company agrees to redeem them at the request of the company and grant payment guarantee on newer bonds issued by the company and consider that money as the payment for the redemption of the former bonds, and if the financial institution signs such agreement because of its misunderstanding due to the act of deception about the financial situation of the company and if such misunderstanding was maintained until the time of payment guarantee on the new bonds, the causal relation between the payment guarantee on the new bonds and the act of deception shall be deemed to be acknowledged, and such causal relation shall not be deemed to be broken because the direct purpose of the payment guarantee on the new bonds was to be repaid with the money spent on the redemption of the former bonds.
4. Repaying the existing debt by taking a new loan out only on paper without giving or receiving funds in reality amounts to a separate loan unless under special circumstances but is no more than extending the maturity of the existing debt, so if the financial institution that has granted payment guarantee on already issued company bonds guarantees newly issued company bonds in order to secure the fund for the payment, it entails changes in the creditor and the movement of funds, which shall not be deemed to be just an extension of maturity
5. If a stock company receives payment guarantee on its bonds by deceiving a financial institution, the profit that the company acquires through the above process shall be the profit that lets the debt on the company bonds that the financial institution granted payment guarantee on be used as collateral to issue its bond, while the surplus (profit) shall be equivalent to the principal of the company bonds that were the object of the original payment guarantee
6. If a person who has stored funds owned by multiple companies without distinguishing the ratio of the shares embezzles part of the fund, the multiple companies shall be deemed to be in the position of joint owners of the embezzled fund whose share ratio is unknown, and the multiple companies shall all be deemed as victims of the crime of embezzlement
7. The crime of evasion of forcible execution stipulated in Article 327 of the Criminal Act is a crime of abstract danger that is committed against the person who intends to implement a forcible execution by putting the creditor in danger of injury through an act of hiding properties so that they will not be discovered or it would be hard to find them
8. CEO's act to store part of the monetary sources owned by affiliates of the Sungwon Group as above only constitutes part of the act of embezzlement against affiliates of the Sungwon Group and shall not be assessed as the act of hiding in a crime of evasion of forcible execution committed by CEO against his creditors
9. A person who deals with another party's work who is the main offender of malfeasance in office refers to a person who is acknowledged to have a relationship of trust with that other party based upon the principle of good faith and does not have to have authority over that work in relationships with third parties. Meanwhile, even if an abstract amount of pay is decided for the management of a stock company through resolution at a shareholders' meeting or a board of directors, for a member of the management who never conducts any actual work of the company, the right to claim the pay is not generated, and as the stock company is an individual right holder that is independent from the shareholders and does not always have the same interest as the shareholders, so an act of regularly paying a member of the management who never conducts any actual work of the company only because he has not been dismissed or there is no possibility for him to be dismissed at a shareholders' meeting or a board of directors shall not be justified.
10. Under the principle of legality, the interpretation of the provision on the constituents of criminal punishment shall be strict, and considering that Article 21, Article 21-2, Article 21-3, et al. of the former Depositor Protection Act (before it was amended on May 29, 2003 into Act Number 6891) clearly distinguish the "right to request the submission of documents" and the "right to investigate" and also in Article 41 which is a provision about punishing violations, and unlike some Acts such as the Public Post Election Act that clearly stipulates the "right to request presence," does not have a clear provision about the above at all, and the fact that Article 21-2 Section 7 of the current Depositor Protection Act which was amended on March 24, 2006 into Act Number 7885 stipulates the "right to request the submission of documents" and the "right to request presence,"the "right to investigate" of Article 21-2 Section 7 of the former Depositor Protection Act shall be deemed not to include "right to request the submission of documents" or the "right to request presence."
11. Whether a loan was given by a financial institution through misunderstanding due to an act of deception or not shall be judged by whether the person who had the authority to decide on the loan was misunderstood or not at the time of decision (refer to Supreme Court Decision 2002Do2620 delivered on July 26, 2002 et al.), and the burden of proof lies with the prosecutor.
12. For a crime of malfeasance in office to be constituted, there should be concerns that the act of violating duties would generate property damages, so if there is no concern that a risk has created not to repay a debt because the loan did not involve any movement of capital and was no more than a change of debtors on paper, such act of loaning money shall not be deemed to constitute a crime of malfeasance in office.

Reference Provisions

1. Article 347 of Criminal Act, Article 3-1 of Act on the aggravated punishment, etc. of specific economic crimes
2. Article 17, 347 of Criminal Act, Article 3-1 of Act on the aggravated punishment, etc of specific economic crime.
3. Article 17, 347 of Criminal Act, Article 3-1 of Act on the aggravated punishment, etc of specific economic crimes
4. Article 347 of Criminal Act, Article 3-1 of Act on the aggravated punishment, etc. of specific economic crime
5. Article 347 of Criminal Act @ Article 3-1 of Act on the aggravated punishment, etc of specific economic crime.
6. Article 355-1 of Criminal Act, 3-1 of Act on the aggravated punishment, etc. of specific economic crimes.
7. Article 327 of Criminal Act
8. Article 327, 355-1 of Criminal Act
9. Article 355-2, 356 of Criminal Act
10. Article 21-1 (7) Old Depositor Protection Act (Act No. 6891, May. 29, 2003)
11. Article 347 of Criminal Act, Article 3-1 of Act on the aggravated punishment, etc of specific economic crimes
12. Article 355-2 of Criminal Act, Article 3-1 of Act on the aggravated punishment, etc of specific economic crimes.

Article 17 of the CRIMINAL ACT (Causation)

Any act which is not connected with the danger which is an element of a crime, it shall not be punishable for the results.

Article 327 of the CRIMINAL ACT (Evasion of Execution)

A person who, for the purpose of evading execution, conceals, destroys, damages, fraudulently transfers or encumbers his property, thereby causing a loss to ones creditor, shall be punished by imprisonment for not more than three years or by a fine not exceeding ten million won. <Amended by Act No. 5057, Dec. 29, 1995>

Article 347 of the CRIMINAL ACT (Fraud)

(1) A person who defrauds another, thereby taking property or obtaining pecuniary advantage from another, shall be punished by imprisonment for not more than ten years or by a fine not exceeding twenty million won. <Amended by Act No. 5057, Dec. 29, 1995>

(2) The preceding paragraph shall apply to a person who, by the methods of the preceding paragraph, causes a third person to take property or to obtain pecuniary advantage from the latter.

Article 355 of the CRIMINAL ACT (Embezzlement and Breach of Trust)

(1) A person who, having the custody of another's property, embezzles or refuses to return it, shall be punished by imprisonment for not more than five years or by a fine not exceeding fifteen million won. <Amended by Act No. 5057, Dec. 29, 1995>

(2) The preceding paragraph shall apply to a person who, administering another's business, obtains pecuniary advantage or causes a third person to do so from another in violation of ones duty, thereby causing loss to such person.

Article 21-2 of the DEPOSITOR PROTECTION ACT (Vicarious Exercise of Right to Claim Compensation for Damages)

(7) The Corporation may, when deemed necessary to claim compensation for damages, to exercise vicariously the right to claim compensation for damages or to participate in a lawsuit under paragraphs (1) through (4), investigate the business and the status of property of the relevant insolvent financial institution, etc. and the persons related to insolvency: Provided, That the scope of any third person among the persons related to insolvency shall be limited to an accounting corporation or a certified public accountant. <Amended by Act No. 6323, Dec. 30, 2000; Act No. 6807, Dec. 26, 2002>

Article 3 of the ACT ON THE AGGRAVATED PUNISHMENT, ETC. OF SPECIFIC ECONOMIC CRIMES (Aggravated Punishment of Specific Property Crime)

(1) Any person who commits the crime as prescribed in Article 347, 350, 351 (limited to the habitual crime as prescribed in Articles 347 and 350), 355 or 356 of the Criminal Act, shall, if the value of the goods or profits on property which he gains or has another person gain (hereinafter referred to as an "amount of profit") is five hundred million won or more, be punished as follows:

1. If the amount of profit is five billion won or more, he shall be punished by imprisonment for lifetime or not less than five years;
2. If the amount of profit is not less than five hundred million won but less than five billion won, he shall be punished by imprisonment for a definite term of three or more years; and
3. Deleted. <Amended by Act No. 4292, Dec. 31, 1990>

Reference Cases

2. Supreme Court Decision 2002Do7262 delivered on April 29, 2005 ( Gong2005Sang, 871)

4. Supreme Court Decision 2002Do7262 delivered on April 29, 2005 ( Gong2005Sang, 871)

5. Supreme Court Decision 2005Do5567 delivered on November 24, 2006 (Gong2007Sang, 92)

6. Supreme Court Decision 97Do2609 delivered on December, 26, 1997(Gong1998Sang, 475)

7. Supreme Court Decision 88Do343 delivered on May 23, 1989(Gong1989, 1032)

8. Supreme Court Decision 2000Do1447 delivered on September 8, 2000(Gong2000Ha, 2166)

11. Supreme Court Decision 2002Do2620 delivered on July 26, 2002(Gong2002Ha, 2163)

• Defendant: Defedant 1, CEO Defendant 2, Director of the Company

• Appellant: Prosecutor and Defendants

• Defense Counsel: Law Firm Taepyongyang (Attorneys Lee, Jeongwook and 4

others)

• Judgment of the Court below: Seoul High Court Decision 2005No1858 delivered on Feb 14, 2006

• Judgment Date: June 1, 2007

Reasoning

This is to judge the Reasons for Appeal.

1. On the Reasons for Appeal by the defendants

A. Concerning the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (fraud)

(1) Collective action on a crime through complicity is not on the premise that all accomplices realize the components of the crime by themselves, and can be conducted just by cooperating with the accomplice that does the act of realization to strengthen the decision on the act, and whether it falls on to the above or not shall be judged through a comprehensive consideration of each person's degree of understanding about the result of the act, their degree of participating in the act and their will to dominate the crime (refer to Supreme Court Decision 2006Do1623 delivered on December 22, 2006).

According to the evidence legitimately selected by the court below in comparison with the above legal reasoning, for the same reasons that are explained by the court below, it is justifiable to recognize that defendant 1 who has controlled the work of the affiliate companies including the finance and the human resources as the chairman of the Sungwon Group is accountable for being a joint principal offender who conspired with the management and the employees of the Group's affiliates including Sungwon Corporation and Sungwon Industry Development in preparing and submitting false financial statements and receiving payment guarantee from financial institutions, and there is no violation of laws including misunderstanding the scope of constituting a joint principal offender or violating the rule of evidence selection, as argued in the Reasons for Appeal. The above part in the Reasons for Appeal shall not be accepted.

(2)The Act on External Audit of Stock Companies stipulate (Article 13 Section 3) that a stock company as provided in Article 2 of the above Act shall prepare financial statements according to accounting standards in accordance with Article 13 Section 1, and provides that an act of preparing and disclosing false financial statements by violating the above accounting standards as subject to various kinds of administrative sanctions and criminal punishment, so a financial institution that review a loan application by a stock company stipulated in Article 2 of the above Act, unless under special circumstances, shall believe that the company's financial statements of a certain fiscal year was prepared according to the accounting standards that apply to that fiscal year. Therefore, in preparing the financial statements for the fiscal year whose accounting standards have later been revised, for a stock company to apply the revised accounting standards in advance to hide net losses for the period that would have been disclosed if the previous accounting standards had been applied, therefore to prepare the financial statements to show that there have been net profits during the period, without clarifying it in the footnote, but submit such false financial statements to a financial institution, could make the financial institution misunderstand that the above financial statements were prepared according to the previous accounting standards that should be applied to the fiscal year in question and as a result the net profits were generated during the period, which shall be deemed to be an act of deception that causes confusion of the financial institution about the financial situation of the company during the fiscal year. The above might not change even if the revised accounting standards have been improved to reflect the financial situation of the company more accurately, and even if the revised accounting standards have been in place since the above act, it shall not constitute the case where the law has amended after a crime where Article 1 Section 2 of the Criminal Code applies.

If a financial institution believed that net profits were generated during a certain period according to the previous accounting standards due to the financial statements prepared and submitted as above and as a result decided to give a loan, and if the financial institution knew at time of loan review that the financial statements were prepared as above to hide the net losses that would have been disclosed if the financial statements were prepared according to the previous accounting standards then such loan would not have been granted, the causal relation between the act of deception through the submission of false financial statements and the loan decision is acknowledged regardless of the intention and the capability of the company to pay back the loan and whether a collateral has been provided or not (refer to Supreme Court Decision 2002Do7262 delivered on April 29, 2005 et al.), and it shall not be deemed differently even if the financial institution would have discovered the above accounting practice if it had closely analyzed the submitted financial statements. In addition, even if a loan could have been granted to the above company in the red according to the usual loan standard of a financial institution, it shall not be deemed to break the causal relation between the act of deception through the submission of false financial statements and the loan decision, but whether the causal relation is broken or not shall be looked into after appropriately considering and assessing negative impact on the credibility evaluation that would have been caused if the fact had been disclosed that the company had submitted financial statements that had been prepared to show as if the company had been in the black to hide the situation that it had actually been in deficit.

In addition, if the financial institution that granted payment guarantee on the bonds issued by the stock company agrees to redeem them at the request of the company and grant payment guarantee on newer bonds issued by the company and consider that money as the payment for the redemption of the former bonds, and if the financial institution signs such agreement because of its misunderstanding due to the act of deception about the financial situation of the company and if such misunderstanding was maintained until the time of payment guarantee on the new bonds, the causal relation between the payment guarantee on the new bonds and the act of deception shall be deemed to be acknowledged, and such causal relation shall not be deemed to be broken because the direct purpose of the payment guarantee on the new bonds was to be repaid with the money spent on the redemption of the former bonds.

Meanwhile, repaying the existing debt by taking a new loan out only on paper without giving or receiving funds in reality amounts to a separate loan unless under special circumstances but is no more than extending the maturity of the existing debt, so if the financial institution that has granted payment guarantee on already issued company bonds guarantees newly issued company bonds in order to secure the fund for the payment, it entails changes in the creditor and the movement of funds, which shall not be deemed to be just an extension of maturity (refer to Supreme Court Decision 2002Do7262 delivered on April 29, 2005 et al.). Besides, if a stock company receives payment guarantee on its bonds by deceiving a financial institution, the profit that the company acquires through the above process shall be the profit that lets the debt on the company bonds that the financial institution granted payment guarantee on be used as collateral to issue its bond, while the surplus (profit) shall be equivalent to the principal of the company bonds that were the object of the original payment guarantee (refer to Supreme Court Decision 2005Do5567 delivered on November 24, 2006).

According to the evidence legitimately selected by the court below in comparison with the above legal reasoning, the court below, for various reasons that were explained in the decision including the specific ground to deem that the loan would not have been granted if the financial institution had known that Sungwon Corporation and Sungwon Industry Development were suffering from net losses but prepared financial statements as if net profits had been generated to apply for a loan, viewed that all of the acts committed by the defendants, by conspiring with the management and the employees of the above companies, including preparing and submitting the financial statements for Fiscal Year 1995 and 1996 of Sungwon Corporation and the financial statements for Fiscal Year 1995 of Sungwon Industry Development by applying the revised accounting standards in advance, receiving loans such as payment guarantee from financial institutions that believed that net profit had been generated through the previous accounting standards that should have been applied to each of the fiscal years, seeking the payment of the additional expenses that went over the contracted amount with the Korea National Housing Corporation which is one of their clients, which has been refused, and while bringing a suit to claim such payment, prepared and submitted the financial statements for Fiscal Year 1997 of Sungwon Corporation in a way to make it look like net profit had been generated by calculating part of the additional expenses as profit from construction, which goes against the accounting standards that were in practice at that time, and receiving loans such as payment guarantee from financial institutions that believed that net profit had been generated through the previous accounting standards that should have been applied to the fiscal year, constitute the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (fraud), which is justifiable, and is not in violation of the laws including misunderstanding the legal reasoning concerning deception, causal relations, profits or the meaning of Article 1 Section 2 of the Criminal Code in the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (fraud), or violating the rule of evidence selection, as argued in the Reasons for Appeal (according to the decisions of the court below and the first court, the part about calculating the value by applying the exchange rate of January 3, 1998 was decided not to constitute an act of deception by the first court, and as it is obvious that the court below sustained it as is, the argument in the Reasons for Appeal by the defendants is due to misunderstanding and obviously illegitimate, therefore will not be looked into separately). All of the articles in the Reasons for Appeal concerning the above part shall not be accepted.

B. Concerning the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (embezzlement)

If a person who has stored funds owned by multiple companies without distinguishing the ratio of the shares embezzles part of the fund, the multiple companies shall be deemed to be in the position of joint owners of the embezzled fund whose share ratio is unknown, and the multiple companies shall all be deemed as victims of the crime of embezzlement (refer to Supreme Court Decision 97Do2609 delivered on December 26, 1997).

According to the evidence legitimately selected by the court below in comparison with the above legal reasoning, the court below, for the reasons explained in its decision, judged that the act committed by defendant 1 who is the chairman of the Sungwon Group and person 1 who is not a party in this case and who is the vice chairman in managing funds together while working on the projects such as building apartments on the land owned by Seowoo Construction which is an affiliate company, selling the apartment site owned by Seowoo Construction to person 2 who is not a party in this case and receiving 575 million Korean won as part of the sales price, distributing promissory notes separately issued by Sungwon Corporation and endorsed by Sungwon Industry Development, receiving a total of 2.575 billion Korean won including the 2 billion Korean won for the promissory notes, depositing only part of the above amount as business funds for the above three companies and using the rest of the amount for personal use constitute embezzlement of the jointly owned funds of the above three companies and that all three of the above companies are victims, which is justifiable, and is not in violation of the laws including misunderstanding of legal reasoning concerning the victims of the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (embezzlement) and violating the rule of evidence selection, as argued in the Reasons for Appeal. The Supreme Court Decision cited in the Reasons for Appeal concerns a different case therefore is not appropriate to cite in this case.

Meanwhile, the purport of the suit concerning the above part is that defendant 1, by conspiring with person 1 who is not a party in this case, embezzled the money except for the normally deposited amount out of the 2.575 billion Korean won that he received on April 13, 1999 from person 2 who is not a party in this case and who is the representative director of Woosung Construction, and not that he embezzled the checks specifically recorded according to the check tracing, so the argument that the above checks might have been the personal property of defendant 1is the result of misunderstanding the purport of the suit in this case and therefore shall not be accepted. The Reasons for Appeal concerning the above part shall not be accepted either.

C. Concerning evasion of forcible execution

The crime of evasion of forcible execution stipulated in Article 327 of the Criminal Act is a crime of abstract danger that is committed against the person who intends to implement a forcible execution by putting the creditor in danger of injury through an act of hiding properties so that they will not be discovered or it would be hard to find them (refer to Supreme Court Decision 88Do343 delivered on May 23, 1989 et al.).

According to the evidence legitimately selected by the court below, defendant 1 had stored part of the monetary sources owned by him and affiliates of the Sungwon Group in the drawer of the master bedroom of his residence or in a safe and used them to acquire real estate under the name of a third party, but the fact that defendant 1 did not deposit the monetary sources owned by him in a financial institution et al. but stored in the drawer of the master bedroom of his residence as above, is not sufficient to deem that it constitutes the act of hiding in a crime of evasion of forcible execution or that it has put the creditor of defendant 1 in danger of harm, unless specific motives or reasons for the defendant 1 to store his personal funs as above are considered. In addition, defendant 1's act to store part of the monetary sources owned by affiliates of the Sungwon Group as above only constitutes part of the act of embezzlement against affiliates of the Sungwon Group and shall not be assessed as the act of hiding in a crime of evasion of forcible execution committed by defendant 1 against his creditors (refer to Supreme Court Decision 2000Do1447 delivered on September 8, 2000).

Therefore, the Reasons for Appeal whose purport is that defendant 1's act to acquire real estate under the name of a third party by using the above fund constitutes an act that is not punishable, on the premise that defendant 1's act to store part of the monetary sources in the drawer of the master bedroom of his residence constitutes the crime of evasion of forcible execution by hiding. The court below excluded the argument that defendant 1's act constitutes an act that is not punishable, albeit the logical ground is somewhat different, is justifiable and is not in violation of the law committed by misunderstanding legal reasoning concerning the scope of a non-punishable act, as argued in the Reasons for Appeal. The Reasons for Appeal concerning the above part shall not be accepted either.

D. Concerning embezzlement in office

According to the evidence legitimately selected by the court below, the court below acknowledged that defendant 1 had committed a crime as a joint principal offender by conspiring with person 3 who is not a party in this case and who is in charge of construction support at Sungwon Corporation and who is also the younger brother of his wife in building a stash fund with the fund owned by Sungwon Corporation and in embezzling it by using it for personal use, which is justifiable and is not in violation of the law committed by misunderstanding legal reasoning concerning the scope of a joint principal offender or by violating the rule of evidence selection, as argued in the Reasons for Appeal. The Reasons for Appeal concerning the above part shall not be accepted either.

E. Concerning malfeasance in office

A person who deals with another party's work who is the main offender of malfeasance in office refers to a person who is acknowledged to have a relationship of trust with that other party based upon the principle of good faith and does not have to have authority over that work in relationships with third parties. Meanwhile, even if an abstract amount of pay is decided for the management of a stock company through resolution at a shareholders' meeting or a board of directors, for a member of the management who never conducts any actual work of the company, the right to claim the pay is not generated, and as the stock company is an individual right holder that is independent from the shareholders and does not always have the same interest as the shareholders, so an act of regularly paying a member of the management who never conducts any actual work of the company only because he has not been dismissed or there is no possibility for him to be dismissed at a shareholders' meeting or a board of directors shall not be justified.

According to the evidence legitimately selected by the court below, for the reasons explained in its decision, the court below judged that defendant 1 who is the chairman of the Sungwon Group and who has controlled the finances of the affiliate companies had committed malfeasance in office as a joint principal offender by paying person 4 who is not a party in this case and who is his wife monthly salaries even though she had been elected as a member of the management of the affiliates of Sungwon Industry Development and Sungwon Engineering Construction by conspiring with the management and the employees of the above companies, which is justifiable and is not in violation of the law committed by misunderstanding legal reasoning concerning the scope of constituting a joint principal offender, malfeasance in office, causal relations and possibility of anticipation or by violating the rule of evidence selection, as argued in the Reasons for Appeal. The Reasons for Appeal concerning the above part shall not be accepted either.

2. On the Reasons for Appeal by the prosecutor

A. Concerning the violation of the Depositor Protection Act

Under the principle of legality, the interpretation of the provision on the constituents of criminal punishment shall be strict, and considering that Article 21, Article 21-2, Article 21-3, et al. of the former Depositor Protection Act (before it was amended on May 29, 2003 into Act Number 6891) clearly distinguish the "right to request the submission of documents" and the "right to investigate"and also in Article 41 which is a provision about punishing violations, and unlike some Acts such as the Public Post Election Act that clearly stipulates the "right to request presence," does not have a clear provision about the above at all, and the fact that Article 21-2 Section 7 of the current Depositor Protection Act which was amended on March 24, 2006into Act Number 7885 stipulates the "right to request the submission of documents" and the "right to request presence," the "right to investigate" of Article 21-2 Section 7 of the former Depositor Protection Act shall be deemed not to include "right to request the submission of documents" or the "right to request presence."

The decision by the court below with the same purport is justifiable, and is not in violation of the law which was committed by misunderstanding legal reasoning concerning the interpretation of Article 21-2 Section 7 of the former Depositor Protection Act as argued in the Reasons for Appeal. The above part in the Reasons for Appeal shall not be accepted.

B. Concerning the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (fraud)

Whether a loan was given by a financial institution through misunderstanding due to an act of deception or not shall be judged by whether the person who had the authority to decide on the loan was misunderstood or not at the time of decision (refer to Supreme Court Decision 2002Do2620 delivered on July 26, 2002 et al.), and the responsibility to prove that lies with the prosecutor.

According to the evidence legitimately selected by the court below, for the reasons explained in its decision, the court below judged that there is not enough evidence to deem that each of the loans in this case given by Daehan Merchant Bank which is an affiliate of the Sungwon Group to other affiliates including Sungwon Corporation and Sungwon Investment Development was provided by a decision that was made by a misunderstanding of the person who had the authority to decide on the loan at Daehan Merchant Bank and delivered a guilty verdict on the above part, which is justifiable, and is not in violation of the law committed by misunderstanding legal reasoning concerning the causal relation of the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (fraud) and violating the rule of evidence selection, as argued in the Reasons for Appeal. The Reasons for Appeal concerning the above part shall not be accepted either.

C. Concerning the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (malfeasance in office)

For a crime of malfeasance in office to be constituted, there should be concerns that the act of violating duties would generate property damages, so if there is no concern that a risk has created not to repay a debt because the loan did not involve any movement of capital and was no more than a change of debtors on paper, such act of loaning money shall not be deem to constitute a crime of malfeasance in office.

According to the evidence legitimately selected by the court below, for the reasons explained in its decision, the court below judged that the loan in this case given by Sungwon Finance did not involve any movement of capital and was no more than a change of debtors on paper from the former debtor of Doshi Engineering Construction with no capability to repay the debt to Seowoo Construction, and there had been no change of the actual collateral before and after such change, which did not generate a risk of not being able to repay the debt, and delivered a guilty verdict on the above part, which is justifiable, and is not in violation of the law including misunderstanding legal reasoning concerning the constituents of the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (malfeasance in office) and violating the rule of evidence selection, as argued in the Reasons for Appeal. The Reasons for Appeal concerning the above part shall not be accepted either.

3. Conclusion

Wherefore, the appeals by the defendants and the prosecutor shall all be dismissed, and this decision is delivered with the assent of all Supreme Court Justices involved.

Source

• Supreme Court Decision 2006Do1813 Delivered on June 1, 2007, Supreme Court Library of Korea