Foreign companies in South Korea have warned that the new workplace safety law, which will take effect next year, will weaken the country’s attractiveness as a destination for overseas companies.
The U.S., European and British Chambers of Commerce in Seoul said that the Serious Accident Penalty Act, which will take effect in January, has intensified long-standing concerns about criminal penalties for even minor regulatory violations.
Several CEOs’ companies have been investigated for violations of employment laws and customs declarations. They have been threatened with criminal prosecution, travel bans, and imprisonment or deportation.
Kaher Kazem, CEO of GM Korea, was barred from leaving the country without permission from 2018 to 2020 after he and four other executives were sued for accusing 23 workers of long-term irregular contracts . The executives denied wrongdoing, and General Motors disputed the allegations.
Under the new law, senior managers may be held criminally liable for a series of accidents and work-related injuries and illnesses unless they can prove that they meet a long list of standards. Convicted executives will face fines and at least one year in prison.
James Kim, chairman of the American Chamber of Commerce in Korea, said: “South Korean CEOs-whether foreign or Korean-have to take personal responsibility for many things beyond their control.” “They are asking why they risk all these individuals. Risk comes to work here.”
“The law applies equally to South Korean and foreign companies,” said Christoph Heider, president of the Korean European Chamber of Commerce. “But, for example, violating customs regulations here is a crime, which puts importers at higher risk.”
Foreign executives describe the regulatory system as highly complex, opaque, and unpredictable.
The British CEO of a Korean subsidiary of a European manufacturer said: “The law is not clear and the punishment is severe, so it’s no surprise that people are worried.” “It’s not just that I’m not sure how the regulations will be implemented — I consult My lawyers are not sure. It’s terrible.”
The legislation has also been opposed by local employer organizations, including the Korean Enterprise Federation, which described it as “a lot of uncertainty and ambiguity” surrounding the standards that executives are expected to meet.
But supporters say the law is necessary because South Korea has one of the highest industrial death rates among developed countries. According to the Ministry of Labor, more than 2,000 work-related deaths were reported last year.
“Companies should invest more in safety, rather than blindly pursuing profits,” said Kim Woo-chan, a business professor at Korea University. “If they thoroughly implement safety measures, it will obviously help prevent serious work injuries.”
American lawyer and chairman of the U.S. Chamber of Commerce Council, Jeffrey D Jones, said that reliance on criminal prosecutions is causing unnecessary costs to the South Korean economy.
“I often hear multinational companies say that they spend more on compliance in South Korea than any other jurisdiction,” said Jones, who has practiced in South Korea for more than 40 years.
“There are too many criminal liabilities in Korean law-whether it is maintenance issues, environmental issues, employment issues, customs issues or tax issues. If a wider range of administrative fines is adopted instead, South Korea and its economy will be better served .”
South Korea’s foreign business groups have long complained about the country’s lingering protectionism, and the country’s inheritance tax laws are another source of troubling.
In addition to the $550,000 tax allowance, anyone who died while registering as a Korean resident is required to pay a tax rate of 40% to 60% on the entire tax rate on their global assets. After Samsung’s ruler, the Lee family, had to pay $11 billion in taxes after the death of former chairman Lee Kin-hee last year, the impact of this law was brought home by many foreign executives.
“Chairman Li’s death means that many foreign executives are aware of their tax obligations here,” James King said.
“Many people believe that it is best for them to arrange their death time away from South Korea to ensure that their global assets are not taken away from the beneficiaries.”
Additional reporting by Song Zhengya