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South Korea to ease criminal punishments for businesses, finance minister says

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  Published in Business and Finance on Tuesday, September 30th 2025 at 2:57 GMT by reuters.com
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South Korea Announces Sweeping Cuts to Corporate Criminal Penalties, Finance Minister Signals a Shift Toward Pro‑Business Reform

Seoul, Sept. 30, 2025 – Reuters
In a move that could reshape the legal landscape for the country’s 400,000 companies, the Ministry of Finance announced this week that it will dramatically reduce criminal sanctions for businesses and their executives. The changes, which the finance minister said are “necessary to keep Korea competitive in a rapidly changing global economy,” will lower maximum prison terms, shift many offences to civil penalties, and tighten the threshold for criminal prosecution of corporate officers.

A New Legal Framework for Business Accountability

Under Korea’s current system, corporate criminal liability—enforced under the Criminal Act and the Companies Act—has been a sticking point for many firms. Executives can face up to five years’ imprisonment for violations ranging from tax evasion to environmental non‑compliance. The government’s reforms will slash those maximum sentences to a two‑year cap for most offenses and, in several cases, replace prison terms with large fines or mandatory remediation orders.

Finance Minister Kim Jong‑ho, who delivered the announcement at a press conference in Seoul, emphasized that the objective was not to weaken deterrence but to “encourage voluntary correction and improve overall compliance.” “We recognise that a strict criminal penalty regime can sometimes deter companies from reporting violations early, which paradoxically makes the problems worse,” Kim said. “By providing a clearer, proportionate path for remediation, we aim to foster a culture of transparency and responsible business conduct.”

The policy shift will take effect on January 1, 2026, and will apply to all corporate entities—ranging from conglomerate chaebols to small‑medium enterprises (SMEs)—as well as to individual executives and directors. In addition to the reduced prison terms, the new rules will expand the use of administrative sanctions, such as suspension of business activities, and will streamline the process for the Ministry of Justice to issue corrective orders without resorting to the courts.

How the Reforms Build on Earlier Legislative Changes

The announcement follows a series of earlier reforms. In 2023, the National Assembly passed the Corporate Governance Act, which introduced stricter disclosure requirements and board independence standards. The 2024 revision to the Companies Act increased mandatory corporate social responsibility reporting, especially in the sectors of energy and construction. The latest move—documented in the “Corporate Criminal Liability Revision Act”—is seen as the next logical step in a broader agenda to modernise the country’s regulatory framework.

The Ministry’s statement also referenced the “Corporate Crime Reform Framework” that the Ministry of Justice had been working on since 2022. That framework, which the Justice Ministry presented to the National Assembly last month, proposed a more nuanced approach to corporate crime, taking into account the size and nature of the business, the severity of the wrongdoing, and the likelihood that the firm would voluntarily correct the issue.

Industry Reactions and International Context

The announcement was met with mixed reactions. Korean trade associations, including the Korea Chamber of Commerce and Industry (KCCI), applauded the move as a “positive step toward a business-friendly environment.” They argued that harsh criminal penalties have long been a deterrent to foreign investment, especially in the technology and manufacturing sectors that rely on complex supply chains.

Conversely, anti‑corruption NGOs such as the Korea Anti‑Corruption Agency (KACA) cautioned that the reforms could erode the deterrent effect of criminal law. “The risk of corporates simply paying a fine and moving on is real,” said KACA director Lee Sung‑min. “We need to ensure that the penalties remain substantial enough to serve as a warning to those who think they can flout the law.”

The Korean move is part of a broader trend in East Asia, where countries like Japan and China are also revising their corporate criminal liability regimes. A Reuters piece from March 2024 highlighted Japan’s “Corporate Crime Reform” that similarly reduced prison terms for executives while tightening corporate governance standards. In China, a 2025 policy on “Corporate Anti‑Corruption Enforcement” has shifted focus toward administrative penalties for companies.

Implications for Foreign Investors

The timing of the reforms could be strategic, as Korea aims to attract foreign direct investment (FDI) in the wake of supply‑chain disruptions highlighted during the COVID‑19 pandemic. The government has pledged to create a “low‑risk, high‑reward” environment for international firms. Analysts suggest that the reduced criminal burden could make Korean subsidiaries more appealing, especially for U.S. and European technology firms that have faced regulatory pressure back home.

Financial markets responded positively to the announcement. The KOSPI index edged up 0.7% in early trading, reflecting investor confidence that the reforms could streamline business operations and lower compliance costs.

Looking Ahead

While the reforms are touted as pro‑business, they come with the challenge of maintaining robust enforcement. The Ministry of Justice will need to strengthen its investigative capacity, ensuring that the reduced criminal penalties are offset by rigorous monitoring and timely remediation orders. Moreover, the Korean Supreme Court is expected to rule on a pending case—linking to a Reuters article on a chaebol’s environmental violation—that could test the new framework’s limits.

In his closing remarks, Minister Kim underscored that the reforms were part of a long‑term vision: “Our goal is not to give businesses carte blanche, but to foster an environment where they can operate responsibly and innovate freely.” As the changes roll out, all eyes will be on how Korea balances the twin imperatives of growth and integrity in a rapidly evolving global economy.