Archives for November 2008

Seoul High Court: HIV Not Justifiable Reason for Deportation

by Brendon Carr

Some good news for a change: The Seoul High Court has ruled that foreign residents of Korea cannot be deported simply because of testing HIV positive, according to a report in the Law Times I noticed today. The High Court, an intermediate appellate court, affirmed a district court ruling in favor of a Chinese migrant laborer, a Mr. (Ms.?) Heo, who challenged a deportation order by the Seoul Bureau of the Immigration Service prompted by an HIV-positive blood test result.

Presiding Judge Yu Seung-Jeong (phonetic spelling) held that the objective of protecting public health must be balanced against the infected person’s human rights—which means privacy, as well as the right to receive medical treatment. Judge Yu noted that detection and treatment of HIV were more effective methods to arrest the spread of AIDS than simply tossing out foreigners found to carry the virus.

In the community of foreign residents of Korea, the current practice of automatic deportation for HIV-positive foreigners has tended to suppress the number of people getting voluntarily tested—because as bad as a positive result would be, for many it would be worse to be summarily kicked out of the country and returned home jobless and without health insurance coverage.

Although the story doesn’t note whether or not the case has been appealed, a matter as important as this one undoubtedly will be decided by a final judgment of the Supreme Court.

November 14, 2008 | Filed Under Hub of Hubs | 8 comments

Temporary Employees, Contract Employees: Two Years Only

by Brendon Carr

Anyone doing business in Korea quickly becomes familiar—sometimes through painful experience—with the extreme legal protection of employees’ “right” to continued employment. Requiring “just cause” to terminate an employee under the Labor Standards Act (LSA), Korea has created a system of employment for life.

Differing (informal) standards of official enforcement against small-and-medium enterprises (SMEs) and large corporations means that there are two classes of employees in Korea: Those who have nearly no protections or recourse to law, and those who have a grip on an iron rice bowl. Multinational and foreign-invested companies are generally imagined to be flush with cash—which means you, Mr. Foreigner, are only permitted to offer the iron rice bowl.

Under the 1998 Dispatched Workers Protection Act (DWPA)—and its companion statute adopted in 2006, the Fixed-Term and Part-Time Workers Protection Act (FT-PTWPA)— there are some alternative working arrangements possible.

Today my associate Sun-Hee Kim brought me a case report from the Supreme Court of Korea establishing a useful precedent in respect of these workers: Namely, that in all cases, a non-regular employee’s status shall be converted by operation of law to regular (i.e., permanent) employment whenever an employer shall have used that employee for a continuous period of two years or more.

Most of us in the private practice of law already knew this, but a lot of HR directors and company managers have thought they could get fancy and evade the laws. However, this precedent, as a unanimous decision of the Supreme Court, makes things rather unambiguous.

In the case at hand, a company sourced dispatched workers from a worker-dispatch agency, and used those workers for a period longer than two years (over five years, to be precise). But the activities for which the workers were used were not included in the 26 types of occupations enumerated on the “positive list” established under the DWPA.

When those workers tried to claim regular-employee status, the company claimed that since the worker-dispatch was unlawful, the DWPA—and its rule limiting the non-regular status of dispatched workers to two years—should not be applicable.

Needless to say, they lost.

With this precedent in hand, we can state unambiguously: Non-regular employment in Korea is always limited to two (2) years. After two years, if the employer continues to use the services of the non-regular employee, the relationship converts to regular employment by operation of law. And this means that all the consequences of that status—in particular, employment for life—shall come into play.

November 10, 2008 | Filed Under Employment Law | 2 comments

Samsung No. 1 in US Mobile Phone Market; Korean Market Remains Basically Closed

by Brendon Carr

And I think this could quite quickly become a trade irritant if anybody in Washington notices.

The local papers are crowing that in the third quarter tally, Samsung Electronics achieved for the first time the number one sales position in the United States, bumping American phone maker Motorola to number two. Samsung’s share topped 22.4% of the market, the company having shipped 10,600,000 units to American customers. Congratulations to Samsung, which makes good products at generally fair prices, if you buy those products in a market where Samsung faces competition like it does in America.

Motorola sold only ten million, falling to 21.1% of the market. Korean electronics giant LG Electronics snaffled up third place with 9,700,000 phones, for a 20.5% share.

Combined, then, the Korean phone makers have almost 43% of the American market for mobile phones.

How’s it looking on the flip side? How many mobile phones do American companies export to our valued trading partner Korea?

Here’s where it gets hard to take: Zero. That’s right, none. Motorola makes its phones for the Korean market here, having bought a Korean phone maker in 1999. Apple’s iPhone, despite being a smash hit available in Japan and 61 other countries (with 18 more coming soon, including IT powerhouses Ivory Coast, Senegal and Botswana), is not on sale here in Korea. Other big foreign brands are also absent: Nokia is not present here. Sony Ericsson is not present here.

Why? Because Korea maintains a mandatory non-tariff trade barrier against foreign mobile phones, in the form of a local software requirement called Wireless Internet Protocol for Interoperability (WIPI). The WIPI standard is Korea’s 2003 rejoinder to the Japanese i-Mode (vintage 1998), allowing access to a cut-down “walled garden” Internet controlled by the carrier (entry fee to get into the garden, naturally).

WIPI’s largely been a failure from the perspective of encouraging value-added services. Its user experience is terrible—press “1” for Music, “2” to see some actress’ topless photos, “3” to see the Seoul subway map, etc.

But it’s done a great job of protecting Samsung and LG from foreign competition. The reason is that the cost of engineering WIPI into a phone is largely the same, regardless of whether you have a 1% market share or a 50% market share—like Samsung was reported to have in 2006. WIPI is not used in any market other than Korea, which means that anyone wanting to get into the market has to bear the same engineering cost, but can only amortize those costs across a small number of units. That means lower profits, or a loss, for the foreign maker. It tends to reduce foreigners’ interest in the Korean market.

For a phone like the Research in Motion Blackberry (they’re Canadian, not American, but bear with me), or the Apple iPhone, neither of which needs—or wants—WIPI in order to offer their services to customers, any investment in engineering WIPI compliance would be money completely wasted. The last thing that Steve Jobs wants is a service on the iPhone where users have to navigate some kludgey press “1” for this, press “2” for that menu system. Who needs that, when a full Internet browser is available? Yet under current Korean law, these foreign companies who don’t need WIPI have to bear that wasted cost. That’s a classic non-tariff trade barrier.

In case you’re wondering, in Korea the Samsung Anycall Haptic rev. 2 phone goes for US$690 for the 8GB model, US$775 for the 16GB. Rumor has it that the same phone is coming soon at US$199 in America, where Samsung faces a more competitive market. Does anyone think Samsung relishes the idea of Apple bringing iPhone here at US$199 or a similar price point?

Yet “protecting Samsung’s right to gouge Korean customers” is not an idea likely to gain much traction with the United States Trade Representative, especially not now that Samsung is number one in America. Also, it bears mentioning that other American industries are under Korean pressure—General Motors, Ford, and Chrysler are at death’s door, while Korea exports hundreds of thousands of cars to the United States. So I think things are approaching an inflection point on Korea’s trade policy of “We want free access to American markets, while keeping ours closed with non-tariff trade barriers”. Enjoy it while it lasts, guys!

November 9, 2008 | Filed Under Economic News, Non-Tariff Trade Barriers | 7 comments

A Sad Story of Internet Fraud: Beware Steve Kim of Daekwang Corp.

by Brendon Carr

A couple of days ago some Korea Law Blog reader found me with this common tale of woe:

This is a long shot but I found you through Google (korealawblog.com) and thought I’d take a shot.

To make a very long story short, I wired $3800usd to an individual who goes by the name Steve Kim. He identifies himself as Director of a company in Seoul, Korea called Daekwang Corp. Co. LTD. and gives an address of:

330, MOKDONG APT.
1415-1205, SHINJUNG-DONG,
YANGCHUN-GU, SEOUL, KOREA

I had been purchasing some products from him for several years (all around $1000usd) and he kept pushing for larger orders. In April of this year I made the larger order and never heard from him again. He does not respond to mail and I have not received any products. His wire information is:

BANK NAME : KOREA EXCHANGE BANK , MOKDONGNAMBRANCH
BANK ADDRESS : 158-071, 323-4, SHINJUNG-DONG, YANGCHUN-GU, SEOUL, KOREA
ACCOUNT NO. : 168-JSD-100737-7
SWIFT CODE : KOEXKRSE
BENEFICIARY : DAEKWANG CORP. CO., LTD.

If you Google “Steve Kim Daekwang Corp” you will find more victims of this man.

I have written to the Korean Police and the Supreme Prosecutor’s Office in Seoul and received no response.

Can you please enlighten me (even if only briefly) if Korean Police or the government assists in such matters? I am woefully ignorant of Korean culture and if this is a matter of any interest to the government or local authorities there.

Sadly, I had to tell her that the Korean police and prosecutors are profoundly uninterested in fraud cases as a general rule, and in the woes of nonresidents as well. The victim needs to present him or her self to the investigators in person, plus the police generally have to be able to find the fraudster to interview him as well. So if you’re a nonresident foreigner who’s gotten cheated by a Korean, the odds are stacked against you.

One can hire an attorney to appear at the police station and prosecutors’ office to advance a fraud complaint without coming to Korea, but that requires hiring and paying the attorney, and a significant investment at that (because the police and prosecutors are generally vile in their treatment of fraud complainants, and inefficient to boot, which means a lot of unpleasant yet billable time for the attorney). But for most of the folks who got screwed out of amounts of several thousands of dollars, that would simply be throwing good money after bad.

It’s best, therefore, to avoid getting cheated in the first place.

Out of curiosity, I did Google “Steve Kim Daekwang Corp”. There’s enough there to warn anyone away from doing any sort of business with Steve Kim of Daekwang Corp. Co., Ltd. (actually, any company calling itself Daekwang Corp. Co., Ltd. probably would set off my Spidey sense, as Corp. Co., Ltd. is three ways of saying the same thing).

I also checked the commercial register to locate “Daekwang Corp. Co., Ltd.” at the address reported for Mr. Kim. According to the companies database of the Seoul District Court, which has jurisdiction over that address, there is no corporation registered there. Another, relatively well-known corporation goes by the name “Daekwang Co, Ltd.” (alternatively, “Daekwang Corporation”)—it trades in hiking gear, but is registered at another address. There is likely no connection at all between them. If anyone locally should be upset by Steve Kim, it’s these guys.

It probably bears repeating that scumbags like Steve Kim are not all that creative. In 2005 I wrote “How to Get Cheated Every Time: Ignore These Warnings” on the Marmot’s Hole. It’s recommended reading for anyone thinking of doing business with Steve Kim of Daekwang Corp. Co., Ltd. Forewarned is forearmed.

Actually, in the 2005 piece, I make a throwaway reference to “Kimsco World Incorporation CO., LTD.”, an imaginary not-a-real-corporation, which also has the same dippy three-ways-incorporated branding that Steve Kim is using. Guys like him are really not creative!

UPDATE 12/08—Commenter Robert Donaci of Donaci Hair Extensions, another Daekwang Corp Co., Ltd. victim, reports today that Steve Kim now says his business is “bankrupt” due to the bad reports about Steve’s fraudulent business practices, and that’s why Steve can’t fulfill Donaci’s order. It’s always someone else’s fault with these guys.

November 7, 2008 | Filed Under Criminal Law, Hub of Hubs | 11 comments

Korean Bankruptcy Wave Starts to Mount Again

by Brendon Carr

(But for reasons peculiar to this country’s legal system, fewer bankruptcies than you might think…)

As the credit crunch starts to bite in the real economy, and Korea’s position becomes more precarious, corporate bankruptcies start to mount. Today I saw the following short report in the English Chosun Ilbo:

More Companies File for Protection

An increasing number of recession-hit businesses are going belly-up.

The Seoul Central District Court on Thursday said a total of 73 companies filed for court receivership from January until October, a threefold increase from the corresponding period last year, which was 22. Ten firms filed for receivership in September and 12 in October alone, setting all-time monthly records. Small- and medium-sized manufacturers including electronics makers made up the largest portion (32 companies or 43 percent), followed by construction firms (24 companies or 33 percent).

During the IMF crisis in 1997 and 1998, 200 to 300 companies asked the Seoul Central District Court for debt write-offs each year. The number leveled off to 20 to 30 per year after 2000.

Judicial circles say the increase is a warning sign for a serious surge in bankruptcies. Companies who hit a cul-de-sac face bankruptcy proceedings unless their application for court receivership is accepted. A total of 45 businesses filed for bankruptcy with the Seoul Central District Court from January until October this year, the same number as the whole of last year.

This signals the return of bankruptcy as a practice area. Luckily [?], this will be my second go-round with a Korean recession/economic crisis.

But despite having had some experience with this, we’ll be discovering the practice area all over again. That’s because Korea’s bankruptcy laws underwent a profound change as a result of the 1997-98 Asian Economic Crisis, or as it’s known here in Korea, the “IMF Crisis”.

As part of the IMF’s US$57 billion bailout offered to Korea, the government was directed to undertake a study of the bankruptcy laws and adopt legal reforms. At our former firm Shin & Kim my partner Doil Son and I were associates on the team led by our supervising partner Yong Seok Park (he’s now left Shin & Kim too) that collaborated with Orrick partner (now at Sidley Austin LLP) Duncan Darrow, Hebb & Gitlin (now Bingham Dana) partners Richard Gitlin and Tim DeSieno, and Inha University Professor Soo-Geun Oh on the study.

At the start of the crisis, Korea had three separate (and aged) corporate insolvency statutes—the Composition Act, the Company Reorganization Act, and the Bankruptcy Act—and a statute on personal bankruptcy, all of which were hardly ever used.

Those corporate insolvency statutes were relatively ineffective for a variety of reasons, but mainly because nobody—not the insolvent companies’ management, not the creditors, and certainly not the government—wanted to allow recourse to the courts under those statutes.

Management didn’t want to proceed to a reorganization under the Company Reorganization Act (similar to US Chapter 11 reorganization) because the law provided not only for a mandatory replacement of the company’s management, but criminal prosecution of the company’s Representative Director and/or its “shadow directors” exercising control through indirect means. Existing shareholders faced the cancellation of their equity positions, which meant loss of the company.

For smaller enterprises, whose Representative Directors had also been compelled to provide personal guarantees for company debt, it was easier and simpler to walk away from the company—leaving the keys on the desk, so to speak. For big companies, it was similarly important to keep the firm away from the court.

Creditors didn’t want to see a company go into reorg because the court judgment would mean a write-down of the value of their credits, something nobody (creditors were mostly banks, because getting loans was significantly easier/cheaper for chaebol than raising capital through share or bond issues) wanted to see. Write-downs could have resulted in a wider collapse of the banking system than we saw at the time—which is why the government, too, was glad to keep companies out of formal insolvency proceedings.

As a result, major corporate reorganizations were undertaken not by recourse to the courts under the then-effective insolvency statutes, but rather mainly by means of informal “workouts” led by the creditor banks whose loans were at risk.

The informal workout regime was institutionalized in 2001 by the adoption of the Corporate Restructuring Promotion Act (CRPA), which took effect in mid-September of that same year. CRPA provided a formal structure for the lead creditor bank, or committee of creditor banks, to declare a company to be “showing signs of insolvency” and take it into a mandatory workout process managed by the lead creditor bank.

As a measure of how seat-of-the-pants was the process under CRPA, the statute had fewer than 40 articles.

Replacing the three corporate insolvency statutes, the Debtor Rehabilitation and Bankruptcy Act, a modern statute modelled on American bankruptcy law and the product of the IMF project, was approved by the National Assembly March 31, 2005 to become effective a year after its approval. The statute brought Korea a number of modern provisions, but importantly removed the punitive aspects of the old insolvency laws that made them so ineffective.

Thus, as we face a wave of corporate bankruptcies, Korea’s formal insolvency statute is new. And the court system’s experience with applying it, is just a little more than two years old. The body of precedents under the Debtor Rehabilitation and Bankruptcy Act is correspondingly brief—only 20 to 30 cases per year.

That number is pretty surprising, considering that the Seoul Central District Court has jurisdiction over the headquarters of about 90% of large businesses in Korea, and serves a population of at least 10 million.

Why so few cases? Personally, I would finger (i) a good economy, (ii) social factors discouraging resort to formal insolvency proceedings, and (iii) the lingering effects of CRPA, which was renewed summer 2007 in a surprising move by the National Assembly. We had previously expected that CRPA would be abolished, making way for the Debtor Rehabilitation and Bankruptcy Act that came out of the IMF project.

In the coming weeks and months and the spike in bankruptcies we’ll surely experience, creditors concerned about bankruptcy risks need not only to familiarize themselves with the new bankruptcy law, but also with the CRPA which will apply to the great majority of insolvency and reorganization cases.

November 7, 2008 | Filed Under Economic News | 4 comments

Korean Prosecution Studying Introduction of Plea-Bargaining System

by Brendon Carr

Because criminal law has so much greater reach in Korea, touching on a wide variety of business conduct (such as wrongful termination, non-payment of wages, default on payment obligations, or not having the proper markings on your website, or using improperly-sized tires on the car) which might more readily be addressed by civil process in common-law countries such as the United States, we end up doing a fair bit of criminal-law counselling of business clients.

Most of them are shocked by the absence of two concepts they take for granted in the United States: The plea bargain, and offers of immunity from prosecution in exchange for testimony. Well, over the weekend I stumbled across this summary of a speech by Prosecutor-General Lim Chae-jin, promising to introduce a plea-bargain system to Korea:

[H]is agency will study all plea-bargaining systems adopted in advanced countries to introduce one that respects human rights before making a final decision.

A future planning taskforce at the Supreme Prosecutors’ Office has reviewed a draft measure on a limited plea-bargaining system that reduces punishment when the defendant pleads guilty to charges with court approval.

What’s interesting to me is that there is already plenty of incentive in the Korean system for an accused to confess and plead guilty, notably an end to interrogation without charge or counsel which can last up to 21 days, but also including leniency in sentencing upon the inevitable conviction (criminal accused in Korea face a conviction rate greater than 99%, which means once charged, odds are overwhelming that the accused will be convicted and punished).

Case loads at the court are high, however. A few years ago, I read that Korea’s harried judges handle something like 40-50 active cases at a time. Plea bargains will move cases through the court system a lot faster, because they will resolve many cases in one 10-minute hearing instead of several, which will free up judicial resources for more complex cases.

November 1, 2008 | Filed Under Criminal Law | Leave a comment