Americans Overseas: Register and Vote

by Brendon Carr

[This entry will stay top of the page through Nov. 4.]

We all know this election is important. Every election for the Presidency is an important one, but perhaps this November is especially crucial.

As an American citizen overseas, you still have the right—and moral obligation—to vote for the candidates of your choice. If not your state elections, make sure to cast that federal ballot. Go to the Overseas Vote Foundation or the Federal Voting Assistance Program to register and request an absentee ballot to return by mail.

I have heard that FedEx will return the ballots free for Americans voting from Korea. But they have forbidden me from stating such, from providing you a link to their press release or any other confirmation of my understanding (stupidly, I forgot what big corporations are like and asked their corporate-communications department for permission). I recommend you contact FedEx directly to ask about their ballot-return service. It seems like a very patriotic thing for an American company to do for its country, and FedEx ought to be praised for this, no matter how weak and weaselly their corporate-communications department.

As for me, I’m voting for John McCain and recommend you consider the issues and the candidates carefully, before you vote for McCain your own self.

Computer Security As Fraud Preventative

by Brendon Carr

Korea’s government has finally woken up to e-mail’s role in official communications, and banned government employees from the use of free web-based e-mail services for official duties, reports the Korea Times.

Additionally, the government is instituting more stringent data-security practices—controlling access to files on government servers, limiting the use of USB flash-memory sticks, and blocking connections to web-based file-exchange services like WebHard (http://www.webhard.co.kr).

After the spate of data-privacy violations this year, somebody must have tumbled to the vast quantity of private information stored on government computers, and how easy it is to scarf up that data. A two-gigabyte USB key (now sell for about $10) can pull off quite a caper.

Finally, they may be establishing a blacklist of sites inappropriate for government workers to access from work. The days of government-sponsored porn surfing may be at an end. (Thank Goodness for the private sector!)

It’s a bit surprising that it took the government so long to tumble to these measures—in particular, the e-mail address thing.

Imagine you got an e-mail from the Securities and Exchange Commission asking for your help with an official government investigation, but the guy who was writing asked you to reply to “bobsmith847@hotmail.com”. Who would go for that? Yet in Korea, it’s been a very normal practice.

The article quotes a government employee complaining that the free web-based services are easier to use than the government’s official systems. Surely ease of use is an issue. But for a country continuously engaged in a struggle against government corruption, the lax computer-security measures created a rather permissive environment for government crooks.

Last year we had a case where a government official used his @naver.com e-mail address in the course of his scheme to extort money from one of our clients. The official held an office with significant discretionary power over government approvals of a certain product, and was making life difficult for the client by what seemed to be an unreasonable interpretation of the sketchy rules applicable.

And then he sent them an e-mail from his private address suggesting that the problems the client was having were due to “not understanding the Korean market and business practice”, and further suggesting that the best way to solve the issues was to convert their local business to a joint venture with the official’s friend—“and then I can take care of you”. Whoopsie daisy.

He must have felt pretty secure writing that, since his office servers would have no record of the communication. Under the new rules, if implemented competently, he would have a somewhat harder time.

For Korea Law Blog readers managing a company in Korea, or legal counsellors supporting such businesses, here are some questions to ask yourselves:

• Do your company’s Work Rules (sometimes also called “Rules of Employment") include an e-mail and data-security policy?
• Do you log Internet access patterns—i.e., monitor employee visits to websites?
• Do you monitor content of employee e-mails by some kind of keyword-scanning program?
• Are e-mails archived in a central location, or are e-mail boxes stored only on the individual employee’s personal computer?
• Regardless of your policies, what effective practical methods are in place to prevent access to unwanted websites? Do you block access to the free web-based e-mail services and file-exchange services?
• Is there any workgroup-based security plan to prevent access to data outside a user’s ordinary range of responsibilities? Does your server log access to certain files?

There’s definitely a lot to think about here, and in our experience most companies don’t consider any of these issues until after getting hit by an employee fraud or data-theft disaster.

Why Ambulance Chasing Doesn’t Pay in Korea

by Brendon Carr

This short bit in the Korea Times piqued my interest, as it illustrates why English-speaking lawyers aren’t standing by to right every wrong against Korea’s long-suffering foreign teachers of English:

Doctor Blames for Suicide Stemming from Wrong Diagnosis

A hospital is partially responsible for a patient’s suicide if the suicide was committed after a doctor’s wrong diagnosis, according to a court ruling Tuesday.

The Seoul Eastern District Court ordered the National Police Hospital to pay 15 million won ($13,000) in damages to the wife of a late patient, acknowledging a mistaken diagnosis by a doctor at the hospital affected the patient’s suicide decision.

In May last year, the doctor diagnosed the unidentified patient as having terminal stomach cancer. After a few days, the patient killed himself. A detailed examination, however, showed later that he had gastritis.

The wife filed a suit against the hospital, claiming her husband committed suicide from the shock of the diagnosis.

The court ordered the hospital to pay 15 million won.

“We recognize the wrong diagnosis influenced the patient’s decision to kill himself,” judge Park Kyung-gil said in the ruling.

“The patient himself is the most responsible for the suicide. But it seems that he had no other reasons to kill himself beside the erroneous diagnosis, as he had no mental illness related to suicide and was in no financial difficulty,” Park said.

The damages available in the case of shocking medical malpractice resulting in wrongful death were only W15 million (about US$13,000 at today’s exchange rate). Plaintiffs are responsible for nearly all of their legal costs (yes, the court awards money for “legal costs” to a successful plaintiff, but the costs award is based on a fanciful idea of what a lawyer should cost, rather than what a lawyer does cost), which means unless you’re able to represent yourself as a pro se litigant, careful cost-benefit analysis should be undertaken.

And, no, we don’t want to work on a contingency fee. Even 100% of W15 million doesn’t cover the cost of the trial.

Some Lawyers Struggling to Make a Living

by Brendon Carr

The execrable Korea Times reports a polarizing legal community, where solo and small-firm lawyers struggle to survive and others—those in larger law firms—prosper. In other words, a real marketplace, with winners and losers. The current Korean legal market is a far cry from the not-too-distant past, when simply passing the bar exam was an achievement which more or less guaranteed a lifetime of prosperity and prestige.

Those days are over:

Last March, the Seoul Bar Association initiated a fundraising campaign after hearing the heart-wrenching stories of the wives of two late attorneys who had to peddle on the street to make a living.

“It was the first time funds were collected to help family members of deceased lawyers. It would have been unimaginable in the past. But it’s true now,” an association official said.

(Sounds like the Seoul Bar Association ought to commission a group life insurance policy for its members, similar to the American Bar Endowment project of the American Bar Association, and those run by state and local bar associations.)

In the tougher marketplace, the number of bankrupt lawyers is noted by the Korea Times as a new development, with “one or two” insolvent lawyers filing for bankruptcy in the Seoul District Court each year since 2006.

Apparently, the number of lawyers is increasing faster than the load of work available for them to do: The article says that the litigation caseload for attorneys has fallen by nearly half since 1997, from 57.2 lawsuits per year for the average solo practitioner in 1997, to 31.5 in 2007. With the number of lawyers projected to double over the next seven (7) years, this is a worrisome decline.

The figure of seven million Korean won is offered as the average per-case fee for these struggling lawyers, although in 1997 I think the number was lower. Anyway, W7,000,000 multiplied by 31.5 yields a gross annual income of W220,500,000. But it doesn’t go as far as you might think…

The article alludes to high overhead costs for these solos—needing to “hire two or three secretaries and a researcher, maintain an office and promote business”, which the Seoul Bar Association says costs about W15 million per month (W180,000,000 per year).

Now, I used to work in a small firm where I was intimately familiar with the costs. Let’s take a look at those numbers: Secretaries cost about W1,000,000-1,500,000 a month, while a good researcher costs about W2,000,000-2,500,000. Offices for these types of law firms down near the courthouse tend to be filthy holes in the wall, costing not more than W2,000,000-3,000,000 per month. So the overhead for salaries and rent could range between W6,000,000 a month on the low end, and W10,000,000 a month on high end.

“Promote business” is what’s killing these lawyers. Unaffiliated solo practitioners who have not worked as a judge or prosecutor, instead coming out onto the market armed only with a law license, frequently have to hire a non-lawyer broker to help them find cases—and these guys cost money. Usually a good broker demands a salary of W7,000,000-10,000,000 a month plus a share of the profits (although here we’re talking about no-profit law firms). Everybody knows it’s illegal, while at the same time the practice is completely ubiquitous. (In this respect it’s a lot like making foreign lawyers partners in the larger Korean law firms. There are a lot of ethnic-Korean, US-admitted lawyers who are partners—even owners—of Korean law firms.)

The need to hire a broker highlights a number of problems in the traditional Korean lawyer’s way of doing business.

First, the lawyer has to have a bunch of staff doing his job for him—in a traditional “high street” law office, the lawyer doesn’t actually prepare any case for trial, including interviewing clients and witnesses and writing briefs to be submitted to the court. His “researcher” does all of that, while the lawyer merely stamps his name on the papers and drops by the court a couple times a week. His license is really kind of a license to print money.

Because the world owes him a living, the Korean lawyer is relatively inert at the marketing-related activities of speaking, writing, and educating clients and potential clients about the law. Even in large law firms, it’s very difficult to get lawyers to focus on education-based marketing efforts.

(Okay, this is a little unfair—most lawyers, everywhere, are inert marketers. The difficulty in getting Korean lawyers to speak, write, and educate may be more pronounced due to the characteristics of their market, but this is not a problem unique to Korea.)

Furthermore, his tax obligation to the government is not rooted in the actual performance of his business. Because “lawyers are rich” and the fact that many individual clients might not request a receipt for cash payment, the National Tax Service assesses a turnover tax on the lawyer’s office, based on number of matters the lawyer handled—the court reports how many Powers of Attorney (necessary for appearance in a case) are filed by an attorney, and the NTS multiplies that number by its supposition of what the fee must have been. That becomes the lawyer’s taxable income as far as the NTS is concerned.

And finally—and most importantly—note that the Korea Times and the Seoul Bar Association keep talking about “cases”. A traditional Korean lawyer is merely a person who shepherds litigation matters through the court. No lawsuit, no work for the lawyer. However, in a more developed legal market, the lawyer is both an attorney and a counsellor at law—the lawyer provides planning and advisory services to help clients build their business and avoid legal entanglements. In the United States, something like 90% of the lawyers in practice work as counsellor-advisors, rather than as litigation attorneys. The underdevelopment of this segment of practice is what’s making these lawyers poor.

With the number of new lawyers projected to be competing in the future marketplace, the new law schools and the bar associations must begin preparing lawyers for the reality that the legal market is indeed a market—and help them understand how to compete in a market-based system. Not all lawyers are going to be good at it—in the United States, too, there are extremely wide variations in lawyers’ income, based on the fact that not everyone is good at business—but more of them will make it if they are properly educated and prepared by their profession.

Top 12 Search Terms for August 2008

by Brendon Carr

Reading the referrer logs and web statistics for search terms gives one a keen insight into what concerns web surfers. Knowing what brought visitors to the site allows a blogger to tailor the content to what’s been demonstrated to be in demand.

Here’s the top 12 searches that brought visitors to Korea Law Blog so far this month:

1. bob costas plastic surgery
2. bob costas botox
3. bob costas toupee
4. korea law blog
5. bob costas hair
6. korean nudes
7. bob costas surgery
8. rekha sharma nude
9. list of american allies
10. korean law firms
11. brendon carr
12. bob costas cosmetic surgery

Somehow I think the Olympics has raised Bob Costas’ profile in the public consciousness, and not to his advantage either.

Seoul’s Growing Law Firms Finding “No Room at the Inn”

by Brendon Carr

Trumpeting Large Law Firms “One Family Under Three Roofs”, the Law Times reported Thursday on a phenomenon of relevance to all law firms in Seoul, including the foreign law firms supposedly salivating just outside the gates: Seoul’s office buildings are bursting at the seams, and law firms are finding it impossible to locate places with enough space to accommodate their growing numbers.

According to the Law Times, the vacancy rate of commercial office buildings with more than 10 storeys is at or below 1%, and fully 65.5% of office buildings across the Seoul metropolitan area have no empty space at all. In Kangnam it’s 71.7% of all buildings; Mapo and Yeoido, 64.9%, and the Central Business District (Kwanghwamun area) 62.6%. But remember that this is across all classes of buildings; in the Class “A” space the ratio of zero-vacancy buildings must be much greater.

Jeong Jin-Kyu, managing partner of the combined DeRyook/Aju law firm which announced its merger last month, told Law Times, “Originally we intended to lease one office north of the [Han] river for the whole combined firm, but the office situation is really serious. We’re not in a position to be taking up spaces all over the place.” He continued, “Regardless of whether in Kangbuk or Kangnam, we have to take up space for 100 lawyers as well as reserve space for anticipated growth. Finding such a place is very difficult.”

The Law Times mentioned the Horizon/Jisung firm as having a similar problem as DeRyook/Aju, being scattered across three offices already in Kangbuk and Kangnam. Bae Kim & Lee is said to have its people in the Hankook Tire Building on Teheran-no, plus three other locations—and Bae Kim & Lee reportedly is growing by 50 lawyers per year.

And, of course, Korea’s largest law firm Kim & Chang, with its 600-some fee earners, has metastasized from the Seyang Building where it started into three other buildings (to my knowledge, the Northgate Building, the Heungkook Insurance Building, and the Naray Building next door to Seyang).

Our own firm Hwang Mok Park PC is in this same bind: In 1999, the firm occupied the entire 9th floor of the Daekyung Building across from Namdaemun (before it burned down last year), and over time grew to take up 1/3 of the 10th floor. Then the Shinhan Bank designated this building their headquarters, and started to squeeze out the other tenants. HMP, when it needed yet more space, was forced to lease offices on the 10th floor of the neighboring Booyoung Building. Those offices now hold 15 lawyers. HMP overleased in the neighboring building, so we have growth space for maybe another 10 professionals. But our lease in the now Shinhan Bank Building is up in 18 months, and there isn’t space in the Booyoung Building for all of us to come over all of a sudden.

Where are the law firms going to end up? The traditional location for corporate law firms is the Kwanghwamun area north of the river, and due to building restrictions very little new supply appears to be available or on the horizon. In the late 1990s, several corporate firms got rooted in Kangnam, south of the river—notably Bae Kim & Lee, but also Yulchon, Yoon Yang Kim Shin & Yu, and Barun Law are all down there. And there’s not so much additional space coming on line down there, either.

In Yeoido, there are two major developments—the AIG International Finance Centre and Skylan Development’s next-door neighbor Parc 1—each of which will dump massive amounts of space onto the Yeoido market starting in 2010. IFC will have 88,000m² (26,667 pyong), while Parc 1 will have 268,000 m² (81,212 pyong) of office space—each in addition to retail and residential/hotel uses. Historically, no major law firm has been officed in Yeoido despite the island having been designated “the Manhattan of Korea”. But all that empty first-class space may entice one, as the Canary Wharf development got some out of the City of London, and the Landmark East and related redevelopments are pulling firms to the Kowloon side in Hong Kong. Hopefully the rates on offer for long-term early occupants will be favorable.

Additionally, there is one other area I can think of that has a lot of empty office space: Sangam-dong, near the World Cup Stadium in Seoul’s northwest corner. There are a number of completely empty, 25-storey buildings available in Sangam-dong. However, this area is far from Kwanghwamun, taking 25-40 minutes by car, and very far from Yeoido and Kangnam (over an hour to each). We have a client that moved over there, and have to visit on a regular basis. With the busiest district court in Seoul down on Teheran-no an hour away, the only law firm that might move to Sangam-dong would be one with a substantial transactional practice and a profile as a firm which could offer economical service due to location—sort of an Eversheds for Korea.

More Advice for English Teachers on Employment Relations at Korean Hagwon

by Brendon Carr

This weekend I got a nice message from a Korea Law Blog reader thanking me for the Korea employment law FAQ in the sidebar. It’s a popular download, with about 1000 visitors having taken the time to download over the last year. The reader, a foreign teacher of English about to sign a contract and come over to Korea to teach, asked whether it would be worthwhile to have a lawyer look over the contract before executing it.

English-teacher readers of the employment-law FAQ ought to be aware that while in the main the rules stated therein are generally applicable to their situation, some things might be different in their case. English teachers are not my target audience. Put simply, this is because they have no money—or, rather, not enough money—to pay for legal services to settle their usually very small disputes with the hagwon owner. For example, I fielded one call this year where I determined, after a lengthy discourse on what a horrible bastard the owner was, that the caller sought legal assistance in attempting to force the hagwon to pay £25 for a diploma misplaced by the school. So readers need to be aware that the target audience—managers and in-house counsel supporting multinational corporations’ businesses in Korea—may have different needs from theirs.

Setting aside, for the moment, the far more sensible advice DON’T DO IT! (because at this point prospective teachers are usually wedded to the idea, and being the naysayer is like trying to warn your friend his new fiancée is a horrible shrew), my first advice to someone intending to come teach English in Korea is to forget about the contract. So many aren’t honored and the cost and effort required to enforce a contract is greater than the benefit supposedly to be obtained through enforcement. Think of it as a set of guideposts for best efforts rather than a legally-binding document; I assure you, your Korean employer certainly views your contract this way!

Still, it’s often helpful when begging for promises to be honored to have obtained those promises in writing. Here are the key points to hit:

- If your employer has you shuttling around from site to site between in-class teaching engagements, that time is considered to be work time. If you teach split shifts of three hours at a time, and shuttle around between them, you’re a full-time employee. (Full-time, under Korean law, is more than 15 hours a week, just so you know.)

- You’re entitled to 10 or 15 days paid vacation (depending on whether the employer is on a five day, 40-hour workweek or not); if 10 days, you’re also entitled to one additional paid day off for “monthly leave”, which basically means you work two half-Saturdays instead of four.

- You’re entitled to participate in National Medical Insurance, workers’ compensation, and national pension except if you’re coming from certain countries which have a treaty with Korea on the subject. Unemployment insurance is a different story. Foreign workers generally don’t get unemployment—they get deported.

- You’re entitled to 30 days’ severance pay at the conclusion of the contract, provided you’ve worked a “full year” (which doesn’t mean 365 days exactly, but rather more like 11-1/2 months). Severance pay is never forfeited for any reason.

- You should require the hagwon to pay for your plane ticket in advance if they are promising transportation. Don’t be their lender. If you’re going to be paying for the ticket and being reimbursed, get reimbursed in a few installments at the beginning of the contract (1/3 each of the first three months or something like that) rather than letting the employer hold you hostage for a year waiting to get that ticket money.

Be aware that the Korean-national instructors are in a similar boat to you, but not the same boat. They are also frequently mistreated by their employer, having to endure the same kind of crazy oppression and broken promises—but they are also jealous of the “unearned” benefits that you, the foreign English teacher, receive because of your nationality. For example, a Korean instructor doesn’t get any assistance with housing, while foreign teachers usually do; neither do they get a plane ticket to some exotic foreign destination like your home country. Your salary is also higher than theirs, especially at the entry level. Bellyaching to your co-workers about broken promises is not going to earn you friends.

And finally, have enough money available to walk if you need to. Do not come 5000 miles around the world, to a foreign country, without a cash-advanceable credit card that has about $3500 in available credit on it—so you can have a place to stay, meals to eat, and a return ticket home if you’re screwed over by the hagwon. I get a lot of Friday night calls from desperate hagwon instructors looking for a white knight to intervene and restore order to the world by Monday morning, because the instructor doesn’t have enough money for Cup o’Noodles. And the sad fact is, the legal system doesn’t work with instant remedies, if any remedy is available at all. So there’s nothing I can do for these poor, benighted people.

Your Uncle Brendon can’t help you in the case of a dispute. There are a number of reasons, but the primary one is You can’t afford me and so we’re an employer-side practice. Similar divisions of practice area exist among firms in the US and Canada and elsewhere, so we’re not different. But I have already written here in Korea Law Blog and elsewhere on the web where you should go (and where I’ll be going if I ever become an employment-law plaintiff in Korea—I can’t afford me either) for legal help if you’re a hagwon teacher or company employee in dispute over pay, benefits, or unfair dismissal. (This means although I’ll gladly share what I know and think is relevant here on this blog, English teacher, when you call me in the evenings you’re really imposing on my free time. You’re not a client or potential client. Although I’m too much of a softy to say so directly to those who call, it’s tiresome. So save it for real emergencies, please.)

For the purpose of fairness, in the “Don’t Teach English in South Korea” warning page I linked above, there are a number of hyperbolic statements which are simply not true. It’s not true that if you’re not Korean, you have no legal rights; unless you have the misfortune of getting branded “Enemy of People” the courts are fair and evenhanded on nationality. It’s also not true that an English-language contract is “worthless”. (I’ve covered this in an earlier Korea Law Blog entry this summer.) Still, I have to agree with the overall conclusion, which is that Korea is not a good place for foreign teachers of English to come and work.

Understanding Agency, Distribution and Franchise Regulation in Korea

by Brendon Carr

This comes up from time to time in our practice, but infrequently enough (maybe once a year for me, as I do inbound FDI/M&A work and employment law mostly) that when a colleague in Europe asked if we had a throwaway overview memorandum to give, I had to confess that no, we did not. So this weekend my associate Sun-Hee Kim and I polished off the sort of stock memorandum that most law firms should have ready to hand on standard topics, but few Korean firms do. Anyone who is interested in the scintillating subject of agency, distribution, and franchise relationships in Korea may download our paper (Adobe Acrobat PDF, 88Kb download).

Oops! They Did It Again

by Brendon Carr

Law firm mergers seem to be coming on a daily basis, or at least as often as the Law Times turns up on my desk (twice weekly).

This time it’s Kim Chang & Lee ("Korea’s oldest law firm") and Kim & Company who are merging to form a 40-something mid-sized firm, also with ambition to double its mass in the next two years. All of these mergers have the ambition to double their headcount in an impossibly short time, it seems. (Of course, this begs the question—if such hyper-growth is so easy to come by, why weren’t you growing at that rate before? Guess this means the new firm will remain prowling for further merger candidates.)

Kim & Company is a banking and finance-focused practice formed from a team which left Lee & Ko in 2001.

KIm Chang & Lee has been through the merger process before. In 2005 or 2006—I don’t remember—the firm attempted to merge with acquisitive Barun Law, moving most of its lawyers from Kim Chang & Lee’s Insa-dong offices down to Barun’s Samsung-dong (near COEX) offices (at least the biographies disappeared from Kim Chang & Lee’s website and appeared on Barun’s) before reappearing in 2007 in an apparent unwinding of the merger.

The two firms will operate under the Korean name Yang-Heon (양헌). The English name hasn’t been announced yet; both firms’ websites are irregularly updated (you can get news from 1995 on the Kim Chang & Lee website, but nothing past 2002). Of course, our firm’s website is no treat either—Korean firms haven’t caught on to the power of the Internet for marketing purposes.

That’s Right: When You’re in a Hole, Keep Digging

by Brendon Carr

Business-friendly Pres. Lee Myung-bak has surrendered to the street protestors, and it looks like they’ll get their wish for autarky. What makes me say this?

Foreign investment interest in Korea has all but evaporated, and your international reputation for rule of law has been made a joke by your continued legal harassment of Lone Star Funds? Trying to convince foreign investors with the Big Lie that everything’s okay, and Korea welcomes foreign capital to its “level playing field”?

Although I am sure this will get me in trouble with Korea Law Blog reader H. Chang, I’ve got just the ticket for the Korean government: Even though you’ve lost your attempt to pin criminal liability on the foreign capitalists where no crime occurred (at least one of the Lone Star-related cases), and can’t sandbag anymore on the sale of Korea Exchange Bank to HSBC, go ahead and resuscitate past (failed) attempts to characterize Lone Star Korea as a permanent establishment of Lone Star Funds in the U.S.

That way, you can be seen to be attempting to ignore principles of law to “inevitably” seize US$1.2 billion dollars from a foreign investor you’ve tormented and unnecessarily demonized for years, just as the whole sorry affair was fading into the rear-view mirror!

While you’re at it, be sure to declare that foreign capital won’t be welcome, because of “negative public sentiment” when you privatize state-owned companies. That’s sure to help—if what you want is to chase away foreign investors.

Working as a Lawyer in Pyongyang

by Brendon Carr

I must admit: Part of me hungers for the adventure aspect of being out on a barren frontier, where life is desolate and hard. For this reason, I’ve always been more attracted to by the prospect of a smelly-sock train ride across Mongolia, Manchuria, Siberia, Crapistan or Trashcanistan than hitting the five-star resorts of Bali or Singapore. But then I’m also a weenie when it comes to scary food—your Uncle B wants to boldly go to parts unknown, then find the McDonald’s there. (Did I mention that Singapore is awesome? They have Long John Silver’s!)

Anyway, because of this buccaneering spirit, the prospect of working as a foreign lawyer in Pyongyang has been on my list since I’ve been a lawyer.

Michael Hay, a foreign legal consultant in Seoul since 1990, actually did this—striking out from “Big Four” firm Bae Kim & Lee in 2001 to focus on being a full-time North Korea consultant. He established KoreaStrategic Inc. as a consultancy (its domain lapsed in June 2006, though), then with a splash announced the formation of Hay, Kalb & Associates as the first foreign/North Korean joint venture law firm in Pyongyang. The Hay, Kalb website, too, disappeared sometime in 2005, and I lost touch with Mike Hay around the same time. I remain curious to know about his adventure up North; I’m sure it’s been fascinating. However, he was always extremely tight-lipped about what he was doing there. Other than that he was focusing on North Korea “full-time, all the time” it was hard to get any specifics out of him.

There are two other law firms advertising their services and office presence in North Korea: Italy’s Birindelli e Associati (now Chiomenti after being acquired) and Singapore’s Kelvin Chia Partnership. 

But today I found that the International Financial Law Review’s IFLR Legalwire, to which I hadn’t previously subscribed, recently (May 2008) reported on Birindelli partner Sara Marchetta’s experiences in Pyongyang. It’s fascinating stuff, published in two parts—go read Part 1 and Part 2. The article gave the impression that Hay, Kalb was still trading, which is promising, but Marchetta says that Birindelli kept no expatriate lawyer there year-round, because there were only four or five clients a year needing legal services, mostly in resource-extraction and processing ventures.

That’s a pretty discouraging level of business; I hope the rent for those offices in Pyongyang is inexpensive. No wonder there’s no McDonald’s in Pyongyang yet! Looks like it may be Singapore for me just yet.

Law Firms’ Urge to Merge Continues

by Brendon Carr

It’s been a hot summer for the legal market, with firms merging and combining all over. On Friday I noticed the trade newspaper Law Times reporting that Korean law firms continue seeking critical mass:

A three-way merger between Hanbit Law Group, Saegil Patent & Law Firm, and Law Offices of Ha-Yeon Cha, which brings into being a new, 46-member mid-sized firm (with just two foreign legal consultants, so far as I can see, so job-hunters, hint hint...) which expressly states its objective of joining the “100 Club”. Since organic growth is hard to come by, the 100 Club ambition points to this combined firm continuing to seek acquisitions or to be acquired, even as they work on the difficult chore of integration.

Additionally, the paper reports another three-way combination—albeit one short of a merger at this point, instead being a “close cooperation” pledge—was just announced involving Evergreen Law Group (34 attorneys, mostly Shin & Kim alumni), 13-strong SiGong Law P.C., and the eight-member SanGyung Law Firm (also calling itself Law Firm Kim & Kim). Since the firms have only slightly different practice areas and specialties, my guess is a formal merger didn’t happen because of different levels of profitability and expectations for profit-sharing, but that they’re trying to work things out for a fuller integration in the future. Otherwise, given the nature of Korean law firms, I can’t imagine how their cooperation would work.

(P.S.—For reference, the grinning gentleman on the right-hand side of the three-way grip-and-grin is Mr. Yong-Seok Park, the partner who supervised and trained my partner Doil Son and me when we worked under him at Shin & Kim eight years ago. He’s one of the very best teachers and supervisors available to an international lawyer in Seoul, offering encouragement, a gentle but rigorous Socratic method, and benign neglect provided you don’t fuck things up. Young lawyers looking for work, hint hint...)

(P.P.S.—SiGong Law’s Hoon Lee seems to be in the same kind of funk as I’ve fallen into. He’s not updating KoreaLaw.com that often, just like Korea Law Blog this last month. But just like Korea Law Blog—at least I hope you think so—there’s stuff to be learned from reading Hoon’s blog. Check out KoreaLaw.com...)

Leftists’ Fakery Highlights Importance of Translations and “Official Language”

by Brendon Carr

A frequently-asked question put to me from time to time is Are we required to make this contract in the Korean language? The answer to this question, in almost all cases, is NO. As a general rule, Korean statutes and regulations are completely silent on the question of official language, seemingly because whoever’s drafting the statutes presumes that all parties to a transaction are Koreans capable of using the local language. Homogeneity does have certain advantages, you know. One of them is a certainty that there is a common language shared between the parties.

Formation of a contract requires only that the terms and conditions of agreement between the parties be mutually understood. If both parties read and understand Russian well enough to know what they’re agreeing, then Russian is a language suitable for making a contract.

It seems that in other Asian countries there may be some regulation or local rule (maybe a municipal regulation in some Chinese cities, I really couldn’t say), and that foreign businesspeople are inspired by their experiences elsewhere. Or it could be that crafty locals like to tell credulous foreigners that It’s The Law™ to make the contract in Korean, so that the locals retain control of things through the opacity of their language, which is—to put it mildly—as much a world language as Norwegian, or perhaps Faeroese.

But because there’s no official-language requirement for contracts in Korea, you’re free as a bird to transact in English. In fact, English is a better language for contracting, since its vocabulary is so rich and lends itself to clarity.

(That said, it’s important to remember that for virtually all of the Koreans with whom you’re doing business, English is their second language, one which is of little daily utility, and therefore they’re also working at a disadvantage when transaction with you in English.)

In this regard, I am reminded of recent events in the neverending US beef import protests, whereby Amnesty International inspectors here to investigate allegations of police brutality against protestors (it’s interesting how there are no investigations when it’s the other way around) were hoodwinked by their lying, manipulative local staff who prepared false English-language translations of local-language materials for release to the world. (Remember, for leftists it’s not so much about the truth, but about the Truthiness. Fake but accurate is okay with them.) There is a lesson here for foreign businesses.

The Korean Amnesty staff were working to accomplish a goal: Gaining sympathy for their cause from the “court of international opinion.” The language of that court is English—if materials are in the Korean language, the court of international opinion will be ignorant of anything recorded in that language. In other words, evidence must be in English when presented to the court of international opinion, as if it were a rule of civil procedure. And in general, English speakers are not well-equipped to check the accuracy of the translation.

As it happens, there is an official-language requirement in one place in Korea: The courtroom. Evidence submitted to the court must be in the Korean language. Anything that originally comes from a foreign language must be translated by a party into the Korean language. And here’s where we often see misconduct—parties to litigation often deliver to the court Korean-language translations of foreign-language evidentiary materials which are deliberately (I guess if you want to give the benefit of the doubt you could say with gross negligence) inaccurate and misleading to the judge. That puts the party responding to the evidence at a profound disadvantage, because once translated evidence is offered by one party, it’s natural to suspect the other party’s response is self-servingly fake.

Far better, I say, to have agreed Korean-language translations prepared and existing, as an insurance policy (as well as a simple aid to understanding), at the start of your commercial relationship than to leave the job of rendering a Korean-language version to a party seeking to gain advantage in the court. Contract in English, yes, but spend a little extra money on good translations while the sun is shining.

As a practice point, I note that if you’re going to have two versions of a contract extant, the one which is simply a translation prepared for reference should be clearly marked as such, and both versions should contain a clause indicating which version shall control in the event of conflict or error in terms. And for God’s sake, don’t sign both versions! This has caused too many problems to count.

(Tip o’ the hat to the Marmot’s Hole for linking the original story.)

Korea’s Own Coming Mortgage Crisis

by Brendon Carr

While I don’t usually rely on the Korea Times as a source of information, because it’s crappy and there is a self-censorship going on over there, it is in English and that means a link to the story doesn’t require ol’ Brendon to undertake a translation job in order to write about something on this blog. And that has some value in and of itself.

Over the weekend a story appeared on the Korea Times website about the risks associated with Korea’s housing prices and home loans, a topic near and dear to my heart. It seems Korea’s housing finance system puts borrowers at risk in a manner similar to the sub-prime meltdown and coming adjustable-rate mortgage tsunami in the States.

You see, virtually all (90%, according to the Korea Times story) of Korea’s home loans are adjustable-rate mortgages, the kind which are now roiling the US housing market as they reset. Foreign bankers at HSBC, KEB, and Citibank have tried to interest Korean borrowers in fixed-rate loan products, but the market has heretofore been wholly uninterested in such loans. Korean borrowers prefer, and therefore the banks provide, adjustable-rate mortgages. When we bought our apartment, although I specifically instructed my wife (since Korean banks refuse to lend to foreigners, even those with a good job and 12 years’ continuous residency) to get a long-term, fixed rate product, she brought back an adjustable-rate loan—and then argued with me about how stupid the long-term, fixed rate product was. (Why my wife refuses all finance advice from me may be another story.)

But Koreans do Southern California one better. Korean housing loans, in general, are also not “fully-amortizing” loans—instead, borrowers take out an interest-only loan with a term of one to three years, during which time they pay only the interest and none of the principal (although, like my family, they might save separately and pay down the principal that way). At the expiration of the term they roll the note over. Why don’t they pay any of the principal during the term of the loan? Well, for starters, just like the fools in the US housing bubble, nearly all Koreans are convinced that “Real estate only goes up. They’re not making any more land, you know.” But also, the principal balances—even on 50% LTV loans—usually exceed six or seven times the borrowers’ annual income. As a result, the interest expense is too great to add principal repayment to the burden.

Besides, because property always goes up, and lately has gone up like wildfire, only a sucker would pay principal now. You can take care of that when you sell the property, from all the capital appreciation that’s guaranteed to occur! After all, real estate only goes up. They’re not making anymore land, you know.

Now we add the risk factor of the variable-rate loans. Because of the wild property bubble inflation of the last few years, a lot of Koreans have stretched themselves by buying into properties on which they can barely afford the interest-only payments. Interest rates have been quite low of late, with housing loans in the high 5% range available (again, not to you, Mr. Good-Job Foreigner, but any Korean on the street could get one).

But what happens when the interest rate increases, say, to the high 7% range? That interest-only payment, which the homeowner could barely afford in the first place, is now almost 40% greater than it was before. A W1,000,000 payment (which would comprise half the after-tax monthly income of the average Korean wage earner) is now almost W1,400,000. It becomes that much harder to pay the interest. (Remember, most borrowers don’t touch the principal.) Also, since local banks are now required to examine the borrower’s ability to continue to service the loan, by comparing the payment burden to the disposable income of the borrower, many Korean homeowners may find it hard to roll those notes over.

And that means lots of foreclosure sales, or short sales, coming soon. But those tend to depress prices. So mark my words, Korea’s property is entering a deflationary phase. In Japan, Hong Kong, and Singapore, at least, past experience with property bubbles has shown us losses of up to 70% are possible.

Here’s where the 50% loan-to-value ratio hurts the Korean homeowner more heinously than the Americans who’ve lost their homes in the sub-prime crisis: The price decline eats up equity first—the bank’s loan gets paid off in the repossession sale, with the homeowner getting what’s left. This means in the coming bubble deflation, years and years of hard-earned cash savings are about to be lost. In the States, people get dinged on their credit scores and lose a few thousand dollars on the down payment (and no-money-down buyers just lose the imaginary bubble gains)—in Korea, people are going to lose real, hard-to-replace cash.

We’ve been through this kind of thing before—in 1998, interest rates spiked and asset values dropped slightly, putting a lot of apartments into foreclosures and auction sales. What’s different about now and 1998 is that the world economic conditions are different, as well as local ones. In 2009 there will be no American foreign investors galloping to the rescue, that’s for sure. This is going to be ugly.

More Law-Firm Merger Talk

by Brendon Carr

Yes, Dad—I’m still alive. Just been busy. (And disgusted, a bit.)

Seoul’s law-firm merger rumor mill is in high gear, putting one of the “Big Four” law firms at which I used to work in talks with mid-sized Korean law firm KCL (formerly Kim, Choi, and Lim) about bringing the 61 KCL professionals onboard, cementing (only for the moment, I would presume, as this would trigger a cascade effect) the acquiring firm’s position as “Number 2” after Kim & Chang with close to 300 professionals. It seems as if all of the mid-sized law firms which had proven their ability to do some form of corporate work are in play as the Big Four, plus two, continue expanding.

Korean law-firm headcounts are difficult to reckon, because websites are updated very infrequently and some firms also seem to report differently to regional trade media like Asia Law & Business or Korea’s own local Law Times. Some of them don’t include foreign legal consultants or patent attorneys, who are licensed separately, while others—eager to inflate their apparent size, by counting every fee-earner—do.

Since law students at foreign institutions seem to comprise many of Korea Law Blog’s readers, let me offer this: Consolidation in Korean law firms, in my opinion, will paradoxically increase demand for foreign-licensed attorneys, as the larger the firms get the more likely they are to attract domestically-originated international work as well as inbound work from multinationals.

UPDATE 8/8—Word on the street is that KCL and its prospective counterparty were unable to agree on merger terms, with the large firm’s partnership voting down the proposal from KCL. Probably this would be due to different levels of revenue and profitability, as is the case around the world.

Two More Korean Law Firms Merge

by Brendon Carr

On the heels of last month’s merger between Horizon Law Group and Jisung Law Group, today I get news that two more mid-sized Korean law firms have decided their hope for survival and prosperity in the marketplace lies in achieving greater mass. DeRyook International Law Firm and AJU International Law Group have announced their own mergers as well.

DeRyook and Aju in total have 90 attorneys, plus a few dozen allied professionals including foreign legal consultants, patent attorneys, and advisors (former government officials). Thus, this can be seen as part of the larger trend in the marketplace toward size. For several years now, it’s been obvious that 100 has become the smallest size firm considered credible by Korean business, the Korean power elite, and many foreign investors. So 100 has been the target toward which so many firms have built their merger activity.

But as more firms achieve the century mark, not all of whose members can actually do the kind of sophisticated business work which used to be the exclusive province of the 100 Club (but I’m not commenting here on the skill levels at Horizon, Jisung, DeRyook, or AJU), one can expect that size will continue to stand as a proxy for quality—with the new cutoff falling somewhere around the 200 level.

And smart consumers of legal services know that size doesn’t guarantee quality at all. Sadly, very few Korean enterprises are smart consumers of legal services, although it is definitely much better now than when I started my career in 1997. But that’s for another day.

Seoul Housing Bubble Deflating: Hope For Soft Landing

by Brendon Carr

It looks as if the bubble is popping, or at least deflating somewhat, in the Seoul housing market. I don’t know if that’s a good thing or a bad thing. Prices are definitely too high, but of course as a homeowner (thankfully, not a highly-leveraged homeowner) I’d rather the prices remained steady.

The Maeil Kyungjae reports that while I’ve been bleating about Korean apartment prices being too high, they’ve started falling. At least, in neighborhoods better than mine.

Here’s some select bits I’ve translated from Korean to English for the benefit of Korea Law Blog readers:

Where is the “Floor” for Expensive Apartment Prices in the “Bubble Seven”?
Medium- to Large-Size Kangnam Apartments Projected to Drop Another 10-20%

Chart:

[Prices compared Nov. 2006 to June 2008]

Daechi-dong Mido 2-cha Apts (181.8 sq. m.): W3.05 billion -> W2.45 billion (-W600 million)

Daechi-dong Gaepo Woosung 1-cha Apts (214.8 sq. m.): W3.7 billion -> W3.15 billion (-W550 million)

Bundang Geumgok-dong Athena Rex (218 sq. m.): W1.55 billion -> W1.29 billion (-W260 million)

Mok-dong Shinshi Gaji #4 Complex (181.8 sq. m.): W2.05 billion -> W1.625 billion (-W420 million)

“It is difficult to foresee price increases unless there is some striking news like a change to the debt-to-income ratio regulations,” said UNR Consulting Representative Director Sang-Eon Park. “Shrinking demand means an additional 10-20% price decline seems possible for medium- to large-sized apartments.”

I have to believe that eight-buck-a-gallon gas (W2000 per liter)—and Koreans’ inexplicable preference for bloated black sedans that get 15 mpg—has something to do with these falling housing prices. The “Bubble Seven” story reports that satellite-city apartments in Bundang and Yongin are off 15-20% in June. My law partner Doil and I have had a project that has required us to drive out to the Kyeonggi Province city of Kwangju, and the roads have been oddly clear—Doil says it’s like being Will Smith in “I Am Legend” (except that we’re in an Equus—blech).

The Doctor Housing Bubble blog has already examined how gas prices and the stark increase of commuting cost has ravaged California’s exurbs. And that’s at just four bucks a gallon. It’s my belief that the Korean housing bust will be felt most acutely in Bundang, Yongin, Ilsan, Pangyo, and the other satellite cities of Kyeonggi Province, whose residents must commute to Seoul.

Anyway, back to Seoul… Strangely, though, while the prices of these “large” (which is, of course, a relative term—181.8 sq. m. probably yields only 1500 sq. ft. of usable living space, assuming a 75% ratio) apartments apparently drop by such large amounts, the cost of renting in Kangnam—and other areas perceived to have good “neighborhood facilities” (i.e., cram schools)—is going up:

In particular, in the Kangnam’s Daechi-dong and Dogok-dong, which are swimming in hagwon, there has been a rush of inquiries from apartment hunters in advance of the summer school holidays.

Chonsei lease price for a 112 sq. m. apartment in the Daechi-dong Mido 1-cha apartments has gone up by W10 million to the W305-375 million range, while an 85 sq. m. “A"-type apartment at Dogok-dong’s Dogok Rexle has gone up by W5 million to between W325 million and W340 million.

It’s much the same in Nowon-gu’s Chunggye-dong, which is said to be the “Daechi-dong” of the Kangbuk area.

The Konyeong 2-cha apartments, where the neighborhood is chockablock with hagwon, the popular 92 sq. m. apartment lease price has advanced by W22 million to reach the W155 million level.

Furthermore, the 105 sq. m. apartments, which share popularity with the 92 sq. m. size, are also transacting W15 million higher, at W170 million.

Summer “vacation”, what a cruel, cruel lie that is! In Korea, it’s just eight extra hours of cram school education.

I don’t send my children to hagwons (other than a taekwondo class, which is mainly just for health) because I think Korea’s cram school environment is cruel to children. Also, since I spend so much on tuition at the Yongsan International School of Seoul, I don’t actually have any money left over to send them to hagwon even if I wanted to do so.

Still, based on this weekend’s reports, I know what to do to help maintain or increase the price of my own (thankfully close-in) apartment: Open a hagwon—or, better yet, open two of them right next door to each other.

Korea Left Out of Condi’s List of American Allies in Pacific

by Brendon Carr

American media may have missed it, but you can bet your sweet bippy the Korean press—particularly the conservative press like the Chosun Ilbo—noticed the subtle way Secretary of State Condoleezza Rice described the Republic of Korea as somewhat less of an ally to the United States than Asia-Pacific stalwarts Japan and Australia:

U.S. Secretary of State Condoleezza Rice calls South Korea a “global partner” but Japan and Australia “allies” in an article in the July-August issue of bimonthly journal Foreign Affairs, in what appears the latest manifestation of a subtle shift in America’s regional focus.

In a cover story entitled, “Rethinking the National Interest, American Realism for a New World,” Rice writes, “Democratization is also deepening across the Asia-Pacific region… This is expanding our circle of allies and advancing the goals we share.”

“We enjoy a strong, democratic alliance with Australia, with key states in Southeast Asia… and with Japan—an economic giant that is emerging as a ‘normal’ state, capable of working to secure and spread our values both in Asia and beyond.”

As for South Korea, it “too, has become a global partner whose history can boast an inspiring journey from poverty and dictatorship to democracy and prosperity,” she adds.

America’s great friends Russia and China are usually described as US “partners” in this kind of diplospeak, so Rice’s description ought to send a chill down the spine of everyone in Korea who cherishes the “alliance forged in blood” and the special treatment—in military affairs and in trade affairs too—that Korea has received for 50 years as a result.

I wonder how the latest beef protests may figure into US policymakers’ evaluation of the relationship. I don’t think Rice would have been writing for Foreign Affairs with knowledge of the late May events in Seoul. Yes, the Korea-US Free Trade Agreement is dead, dead, dead (good job, guys!), but is the dysfunctional ROK-US “alliance” also dead? Korea is in a bad neighborhood with China, Russia, and North Korea. If the US is ready to wash its hands of the Republic of Korea as an ally, the tax burden for Korean taxpayers is about to spike higher—because the free US defense umbrella is worth a hell of a lot to this country.

A factor leading up to the Korean War was Secretary of State Dean Acheson’s January 1950 speech where he left Korea out of the description of the American defense perimeter in Asia—his list of Asia-Pacific allies, if you will. These are interesting times indeed.

Angry Car Critic Reads Kia the Riot Act

by Brendon Carr

Apparently not everyone is as pleased with their consumer experience as I am. Just got finished reading UK motor critic Jeremy Clarkson (Top Gear)’s scathing review of the Kia Sedona. I wonder if the guy has a drinking problem or something. I got halfway through the meandering article before coming to anything to do with the Sedona.

A Decent Economy Class Experience on Korean Air—Go Figure

by Brendon Carr

On this latest trip to San Francisco, since I’m working against my own marketing-expense budget, I booked economy class and used accrued frequent-flyer mileage (30,000) to upgrade to business (on Korean Air, “Prestige Class”) for the SEL-SFO leg. Coming back today, I flew economy because it’s “high season” in the States and they wanted 45,000 miles for the upgrade. I’ve got a lot of miles accrued, but that’s rich for my blood.

Anyway, as it turns out my experience in economy class was surprisingly better. The airframe for both legs of the flight was the Boeing 777-200. The seats in business are excellent, allowing full recline for sleep. Ordinarily I need the legroom, and find economy to be way too cramped—especially given that Koreans generally are not that tall. Take a knee-knocking ride on a Korean inter-city bus sometime and see what I mean.

On the Korean Air 777-200, they’ve adopted a seat pitch that leaves enough legroom for a 6’ 1” American male like me. Each seat has its own video screen in the seat-back, and—and—a power port for laptop power adapters as well as an Ethernet port. (Sedgwick, if you read this, you’re right—I wasted W50,000 on that MacBook airline power adapter.) Internet service was not active on my flight, but the existence of the Ethernet port points to a future welcome development. (Will Internet be free on KAL? Korea is the “world’s most wired” country, after all.)

The business class flight from Seoul to San Francisco last week was made miserable by the fact that I was seated next to a gassy Korean businessman whose ceaseless farts were eye-wateringly foul. Twelve hours turned away from that dude with my palm cupped over my nose and I was in no shape for my meetings. He also took his shoes off, and those socks were no treat either.

Use-It-Or-Lose-It Annual Leave in Korea

by Brendon Carr

A common question I get from time to time is whether employee leave not used during the year may be forfeited. Prior to the September 2002 Amendment of the Labor Standards Act introducing the 40-hour workweek, the answer had been “no”. Supreme Court precedents overturned the language of the LSA then in effect concerning leave, because there were so many instances where employers had interfered with the employee’s right to use leave.

But part of the Amendment’s objective was to regularize Korea’s working hours and leave system in line with standards in effect in most other countries around the world, and also to spur a leisure culture. Korea’s previous system had encouraged employees to “bank” their annual leave and request payment therefor, instead of using the leave.

So now under the Amendment use-it-or-lose-it leave is part of Korean law. So long as the Amendment is applicable to the workplace, and the employee is notified of the possibility of loss of leave, the leave may be forfeited.

The rule is the employer must notify the employee of leave forfeiture “two months” before forfeiture of the unused leave, after the employee has failed to designate dates for use of leave in response to the employer’s prior written recommendation of dates to use unused leave. If the employee knows of the loss of leave and still doesn’t take leave, that’s his problem.

The timing of the employer’s notice is not later than 10 days into the third month before the leave would lapse; the employee shall be afforded 10 days from receipt of the employer’s notice to respond in writing with a designation of leave dates. This means the first 20 days of the third month before leave lapses are the key days.

Leave in your company probably is calculated on an annual basis according to the calendar year ending Dec. 31, which is customary for most Korean companies. That means October 1-10 is the window to notify employees they may lose annual leave if they don’t use it. HR should send written reminders with suggested dates to use the unused leave during that period, and require employees to revert within 10 days with written confirmation of what dates they will take leave. Anyone who doesn’t respond shall be deemed to have forfeited the leave. This would all be worked out by the 20th and you could then generate letters (or e-mails—e-mail is written communication) to the affected employees.

As this takes place 60 days out, it seems a little short-fused and possibly heartless and an employer could adopt any softer practice you want to give employees more time to confirm their schedules, so long as the employer gives notice in the proper window.

Among its several changes, the Amendment also changed the accrual of annual leave, changing the base entitlement from 10 days to 15 days per year. And the rate of increase has changed, too—from one (1) day per year of service to a maximum of 20 days, to one (1) day per two (2) years of service after the first year to a maximum of 25 days.

From July 1, 2008 the Amendment is mandatory on all workplaces in Korea with 20 or more employees. Employers choosing to adopt the 2002 Amendment in their workplaces smaller than 20 employees shall need to amend their Work Rules, by agreement of the employees, or wait until the Ministry of Labor announces an implementation date for smaller workplaces. But for foreign investors getting set up in Korea the first time, it’s preferable simply to adopt the Amendment’s more employer-friendly provisions on working hours and annual leave entitlement from the get-go.

Somehow I Don’t Think This is Going to Help

by Brendon Carr

Against the backdrop of plummeting foreign investment and the flight of Korean capital to better investment destinations, Strategy and Finance Vice Minister Choi Joong-kyung told the Korea Times that Pres. Lee Myung-bak’s “business-friendly” face doesn’t necessarily mean that Korea’s getting over its xenophobic attitude toward foreign investment:

“A friendly investor should walk hand in hand with the Korean economy for win-win results, but private equities are not such investors,” he added, suggesting that foreign PEFs are not in the friendly investors’ zone.

PEFs, including Lone Star, have been criticized here for using legal loopholes to avoid paying taxes on their capital gains. Lone Star, the largest shareholder of the Korea Exchange Bank (KEB), was recently found guilty of stock price manipulation involving its acquisition of KEB’s credit card unit.

The Lone Star case is one which is well-documented and known by all who follow Korean business. The “hand-in-hand with the Korean economy” bit is especially ridiculous when one consider’s Lone Star’s barely-majority stake in the bank. Who held the other shares? Why, Korea’s state-owned and government-controlled “policy banks” (Bank of Korea, the local equivalent of the Federal Reserve; and Korea Export-Import Bank) and some other individual investors. When Lone Star rescued the failing KEB and saved its share price, those government and individual shareholders who held the other half of capital benefitted as well. And since the bank didn’t go under, all those thousands of jobs were saved too. You can’t get much more “hand-in-hand” than that. Yet this point is persistently distorted for political gain.

As for the tax angle, this too is a red herring and the constant kvetching is not good for Korea’s reputation with investors. Tax structuring is done by lawyers and accountants who read and understand the applicable tax laws and put together the investment vehicles to comply with laws. That Korea hates its own laws and constantly grouses about foreigners who follow the laws does not help the perception of “rule of law”.

On question regarding Korea’s reputation for xenophobia, the policymaker said, “What we don’t like is speculative investors, such as those pursuing only short-term speculative gains in the currency markets.”

“We welcome all the foreign investors coming to seek long-term investment gains,” he added.

Choi doesn’t seem to get that all investment is speculative. Investors make an educated guess about how their investments will perform based on market conditions and the investor’s expected management input. Being against speculators is anti-business. Oh, and how to parse this guy’s last statement? Just so long as you don’t try to take your profits home, Mr. Foreign Investor.

Is this really the way things are going to go? I was hopeful for the LMB government, but the more things progress (with guys like Choi flapping their gums) the more it appears the plan is not globalization of the Korean economy and a fair marketplace, but merely an end to some of the more overt and egregious harassment of Korean tycoons while harassment of unlucky foreign capital continues.

What a disappointment. Koreans really deserve better than this—their leading companies can and do successfully compete in a global marketplace outside Korea. More Korean companies ought to have the opportunity to sharpen their game against the best fair competition even in their home market.

Korea Gets Serious About Child Support Order Enforcement

by Brendon Carr

It’s not business law, but I think this is an interesting tidbit. Today’s Law Times, Korea’s legal-industry newspaper, carries an article headlined “Child Support Orders Ineffective”—over a story telling us, well, how ineffective are the child-support orders issued by the Korean court in divorce cases. But there is good news: Legal reforms being proposed by the government will strengthen (commence) enforcement of these orders, which previously were widely disregarded. According to the Law Times, almost 2/3 of spouses weren’t paying properly:

현행 가사소송법은 부부가 재판상 이혼을 하면서 조정이나 판결에 의해 양육비 지급의무를 부담하고서도 이를 제대로 이행하지 않을 경우 법원이 당사자의 신청에 의해 ‘이행명령’을 내릴 수 있도록 하고 있다. 또 당사자가 이행명령에 정당한 이유없이 불응하면서 양육비를 계속 지급하지 않는 경우에는 100만원 이하의 과태료를 부과하고, 3기 이상 의무를 이행하지 않는 경우에는 30일의 범위 안에서 감치에 처하도록 하고 있다.

Now where a party subject to a child-support obligation pursuant to a divorce decree or agreement does not pay support as required, the other party may request the court to issue an “enforcement order”. If a party fails to respond to a court enforcement order without justifiable reasons, and persistently does not pay support, an administrative penalty of up to W1 million (about US$1025) may by imposed. In the case of three or more failures, detention of up to 30 days may be imposed.

그러나 이혼한 여성 상당수는 전 남편으로부터 자녀양육비를 제대로 받지 못하고 있는 것으로 나타났다. 지난 2001년 가정법률상담소가 실시한 설문조사에서 이혼하고 자녀를 혼자 양육하고 있는 여성 91명의 41.9%가 약정이나 판결대로 양육비를 지급받지 못하고 있으며, 19.4%가 불규칙하게 지급받고 있다고 응답했다. 응답자의 61.3%가 양육비를 제대로 지급받지 못하고 있는 셈이다.

It’s emerging that divorced women don’t receive proper child-support payments from their former husbands. According to a 2001 survey by the Family Law Counseling Center of 91 divorced women raising children along, 41.9% weren’t receiving the child support payments according to their divorce decree or support agreement; 19.4% responded that they received payments irregularly. This means that 61.3% of respondents reported not receiving proper support payments.

The 30 days’ detention looks interesting, as ordinarily the court hasn’t had a contempt power. Now it appears some form of contempt power is being implemented.

This is a proposal currently being raised to solicit public comment. The statute would be passed in the autumn for effectiveness probably in the new year, if not killed during the comment period.

Foreign Schools in Korea: Book Early to Avoid Disappointment

by Brendon Carr

Not being able to enroll your kids in an English-speaking school is a worry for every parent, but this story in the JoongAng Ilbo’s English edition made me smile:

Korea’s notorious lack of convenient services for foreigners has claimed another. The latest victim in the long list of displeased expatriates is none other than the former chairman of the American Chamber of Commerce in Korea.

The problem, which has traveled by word-of-mouth among foreign business professionals here, began when Jeffrey Jones, 56, a current attorney at Kim and Chang, attempted to enroll his two sons at a popular local foreign school.

As one of the most influential business professionals in Korea, he didn’t think he’d have any problems gaining his sons a spot in school. After all, he was the first foreigner to work on a committee for deregulation of the Korean government, and he’s been credited for attracting a large amount of foreign investment here.

But then the school put Jones’ sons on a waiting list, saying they currently had no openings for new students. Jones was not available for comment at press time.

Why am I pleased to see this? It doesn’t have anything to do with the subject of the story, but I am a populist. The fact that Jeffrey Jones is or is not a powerful figure—whether he’s “attracted a large amount of foreign investment” (and that voodoo power appears to be fading), or works for a large law firm or the Korean government—should be of no relevance to the admission of his children to a wait-listed foreign school. There are published rules and everyone on the list should get the same fair shake. That Jeff’s kids got stiffed indicates that whichever school stiffed them is concerned about such fairness. Since this sort of egalitarianism is not how Korea usually operates, it’s heartening news to a populist.

However, there is the other question, which is Why on Earth is this in the newspaper? My kid got blanked by Seoul Foreign School at kindergarten time, and we simply enrolled at Early Childhood Learning Centre, a fine Montessori school. But for some reason, we didn’t make the paper. Now, my kids are enrolled at Yongsan International School and we love it there. That’s not news either.

For those of you coming to Seoul, note this lesson: No matter who you are, contact the admissions offices of the foreign schools as early as possible, and get onto the waiting list.

UPDATE 5/9—Now the Chosun gets in on the action. The Koreans are chasing foreign investment away by Jeff Shock! It’s all anyone can talk about. They’ll rue the day they treated Jeff Jones like an ordinary person…

For those of you losing sleep over the issue, the Chosun reports that Jones’ older, seven year-old son has been granted a place in one of the foreign schools (his stay on the waiting list sure was short...), leaving only the little one out in the barren wilderness. Whew. That is a big relief.

Foreign Investment in Korea Continues to Plummet

by Brendon Carr

The Korea Times has a must-read article describing how foreign investors have had enough of Korean double-talk on foreign-investment friendliness and are withdrawing their investments from Korea. Net FDI—that is, the amount of incoming foreign direct investment as against foreign investments cashed out and withdrawn from Korea—has fallen steadily from almost $10 billion in 2004, to negative $670 million for the first quarter of 2008.

Asia’s most widely-quoted economist Andy Xie offers the following insight why:

“Korea has become less friendly to foreign investment in the past five years as it recovered from the financial crisis,” Andy Xie, an analyst of the Shenzen Development Bank (SDB) in China, who is the former Morgan Stanley chief economist overseeing the Korean economy and financial markets, told The Korea Times.

“Koreans may disagree but this view is widely shared in the international community,” he added.

“Korea’s development model is based on developing indigenous firms to conquer foreign markets, very similar to the Japanese model,” he added. “The opening to FDI during and after the crisis was out of necessity. Korea was down and needed the money. When Korea recovered, it reverted.”

This is the Lone Star Effect in action. Lone Star bought, at the government’s urging, a failing Korean bank and rescued the bank. But nobody told Korea that Lone Star would be doing it for a profit! Profit by a foreign investor is a difficult pill to swallow.

The [Bank of Korea] said that for investment promotion, the government needs to relax more regulations.

“Reforming regulations is the most urgent task for Korea to attract more foreign investment,” [BOK senior economist Lee Won-joon] said.

“If Korea is to become a major FDI destination, it should create a more foreign-friendly business environment by removing red tape and tackling its key competitive disadvantages, such as labor market rigidity,” he added.

Well, sure. But these are the exact same prescriptions which have been bandied about for the 11 years I’ve been working here as a lawyer, and if anything, in the labor aspect things have gotten worse. Labor-market rigidity will never be addressed, not until the economy has completely melted down. It’s like the third rail of Korean politics.

And i don’t think mere deregulation will be enough to draw new foreign investments. A real social change will be necessary. I’m reversing the order in the story, but I think Andy Xie nails it:

“I don’t think Korea can change in the near future to reverse the poor FDI trend,’’ Xie said.

“Korea may be unwilling to make the changes to attract FDI,” he added. “Korea may never become a truly open economy. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open.”

As a signal of which direction things are going, the government apparently plans to renegotiate its just-concluded “deal” on re-opening the Korean market to US beef. Still optimistic that Congress will approve the KORUS Free Trade Agreement?

Now, the Lone Star case was a little bit special in that it involved purchase of Korea Exchange Bank, a large commercial bank occupying one of the commanding heights of the Korean economy—and a sector which is highly unionized. Korean trade unions are nests of Marxist xenophobes, which made the Lone Star KEB investment sure to attract all the worst responses this country can muster.

And Korea responds differently to foreign investment when it comes with “meddling” in management. Foreign portfolio investors generally have a great time of things, so long as they’re willing to sit down and shut up. When a foreign investor takes a 5% stake in a listed company, for example, the investor must publicly declare whether or not the investor intends to interfere with management.

But the government and legal system are supposed to moderate such instincts, not exacerbate and validate them. That’s the reason why foreign investors have lost interest in Korea. Most of them do just fine. But all of them fear having a target painted on their back by a reckless government, and then finding the courts more eager to appease public feeling than uphold the rule of law. L’affaire Lone Star has done considerable damage to foreign confidence in this country, and it will take many years for people to forget.

Thanks, Roh Moo Hyun!

To be honest, though, the damage done by Roh’s 386 gang of crypto-Communists is not the only factor. As BOK economist Lee Won-joon noted, and Pres. Lee Myung-bak echoed in his earliest p