Debate grows over abolishing breach of trust law

Legal reforms must prioritize their impact on citizens, not the maneuvering of politicians. If laws are changed for political convenience, ordinary people will bear the cost.

Cheong Chul-gun

The author is a columnist at the JoongAng Ilbo.

“Executives in Korea can go to prison for making poor investment decisions. Business is about taking risks and making judgments freely. How can companies operate under such fear?” President Lee Jae Myung signaled on Sept. 15, at the first Strategy Meeting on Regulatory Rationalization, that he intends to abolish the criminal charge of breach of trust.

Critics say the move is self-serving. “The president is entangled in breach of trust charges tied to the Daejang-dong, Baekhyeon-dong, Seongnam FC and Gyeonggi provincial government corporate card scandals. He knows he cannot be acquitted, so he wants to abolish the law altogether,” said Han Dong-hoon, former leader of the People Power Party, in a radio interview on Wednesday.

President Lee Jae Myung speaks during the first Strategy Meeting on Regulatory Rationalization at the Korea Institute of Science and Technology (KIST) in Seongbuk District, Seoul, on Sept. 15. [PRESIDENTIAL OFFICE PRESS CORPS]

The most notorious case of what critics call overreach was the investigation of Samsung Electronics Executive Chair Lee Jae-yong over the merger of Samsung C&T and Cheil Industries. Prosecutors argued that the merger undervalued Samsung C&T to inflate the value of Cheil, in which the founding family held larger shares, thereby harming Samsung C&T shareholders. The key question in a breach of trust case is whether actual damages occurred. But when the merger took place in 2015, Samsung C&T stock was valued at 66,602 won ($47.24) per share — it now trades around 190,000 won. Samsung Biologics, accused of being overvalued, started at 136,000 won and has since grown into a top-four Kospi company worth more than 1 million won per share.

Prosecutors resorted to sweeping tactics, summoning large numbers of witnesses and conducting extensive raids. When they searched a Samsung Biologics plant, they seized 7.78 million backup server files without allowing company officials or defense lawyers to participate in the review. Courts refused to accept much of this evidence under Supreme Court precedent. In both trials and on appeal, Lee was acquitted of all 19 charges.

The probe was led by then-Seoul Central District Prosecutors’ Office chief Yoon Suk Yeol, with Han Dong-hoon as deputy chief and Lee Bok-hyun, now former head of the Financial Supervisory Service, leading the economic crimes division. After the appellate court acquittal earlier this year, Lee Bok-hyun apologized to “the people and junior legal professionals,” but said nothing to Samsung, the supposed victim. Prosecutors still filed an automatic appeal, prolonging the case at the Supreme Court. The investigation and trials lasted four years and 10 months, forcing Samsung to delay or suspend major investment decisions.

In recent years, the government and ruling party have introduced amendments to the Commercial Act to check the power of controlling shareholders. These included codifying directors’ fiduciary duty to shareholders, strengthening the 3 percent rule on voting rights and requiring cumulative voting. With such measures in place, the argument goes, the criminal breach of trust provision — unchanged since its introduction in 1953 — should be abolished or revised. Applying the same law crafted in a poor country recovering from colonialism and war to today’s advanced economy seems outdated.

Still, legal reform must undergo public debate to minimize side effects. Lawmakers, legal experts, academics, and stakeholders need to weigh in. One unresolved question is whether abolishing breach of trust for corporate executives should also extend to public officials, such as mayors and governors, who control public funds. President Lee himself faces breach of trust allegations over Daejang-dong and Baekhyeon-dong. For business leaders, missteps risk their own capital. For officials, mistakes involve taxpayer money. Weakening penalties for public officials under the pretext of deregulation for businesses would hand them an undeserved amnesty.

Samsung Electronics Executive Chair Lee Jae-yong was acquitted of all charges in connection with alleged unfair merger practices and accounting fraud. On July 17, the Supreme Court’s Third Division, presided over by Justice Oh Seok-jun, upheld lower court rulings that found Lee not guilty of charges including unfair trading and price manipulation under the Capital Markets Act, as well as breach of trust. The photo shows Lee attending an appellate court hearing at the Seoul High Court in Seocho District, Seoul, on Feb. 3. [YONHAP]

Han Dong-hoon, for his part, also bears responsibility. As a prosecutor, he applied breach of trust charges aggressively. Before wielding it now as a political weapon, he should reflect on that record.

An old proverb says, “When a tangerine crosses the river, it turns into a bitter trifoliate orange.” Sweet fruit can sour when the environment changes. The political debate over breach of trust feels similarly distorted. Legal reforms must prioritize their impact on citizens, not the maneuvering of politicians. If laws are changed for political convenience, ordinary people will bear the cost.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.