[비즈한국] Companies sometimes make decisions that are difficult to explain based solely on money. Understanding the laws and systems hidden within them can provide a deeper insight into the inner workings. ‘Useful Business Laws (Useful Tips)’ introduces clues that help in understanding business flows.
The scope and limitations of administrative investigations are topics that lawyers find difficult to address publicly. Even when an objection to the procedure is raised at the scene, it is rarely accepted. This is because there is a prevailing fear that it would only stiffen the atmosphere, and the burden would ultimately fall entirely on the client.
In theory, an administrative investigation is a voluntary inquiry premised on the cooperation of the subject. However, unlike criminal investigations, there is no procedure to notify the subject of their right to remain silent in advance. Unlike mandatory investigations that are strictly bound by the scope specified in a warrant, the purposes and scopes listed in official investigation notices are often quite comprehensive. As a result, it is difficult for limitations based on purpose to function as practical standards in the field.
The reality of investigation sites is far from theory. It is not easy for a company under investigation to refuse to submit materials. This is because there is a strong concern that refusal could lead to increased intensity of the investigation or additional probes. The reasons for objection commonly raised in the field are limited to irrelevance to the alleged violation, trade secrets, and personal information. However, none of these are likely to yield significant practical results on-site. Relevance to the allegations can be resolved by supplementing and re-issuing the investigation notice. Determining whether something is a trade secret or personal information is difficult on the spot. Ultimately, in most cases, companies submit the materials first and argue later, or settle for submitting them with certain parts redacted.
Nevertheless, there is a reason why investigation sites have operated relatively smoothly until now. As the essence of an administrative investigation lies in the cooperation of the investigatee, adjustments and negotiations continue throughout the process. There was a kind of trust that if a company cooperated to a certain extent, the subject and scope of the investigation would be adjusted reasonably, and sanctions would be applied within a predictable range. It was a structure where cooperation and predictability functioned in tandem.
The problem is that this balance is being shaken. Recently, the Fair Trade Commission (KFTC)’s sanctions are being evaluated as having reached a significantly higher level than in the past. There are voices saying that the extent of leniency granted for cooperation during the investigation and deliberation process is not what it used to be. From a company’s perspective, if the reward for cooperation becomes unclear and the disposition seems likely to lead to an administrative lawsuit anyway, the incentive to actively submit potentially disadvantageous materials decreases. Even as a lawyer, it becomes difficult to find a justification to advise a client to cooperate.
These changes are already becoming the subject of court judgments. Earlier this year, the KFTC conducted an on-site investigation to verify whether there were unfair internal transactions regarding brand (trademark) royalty payments between affiliates of H Group. During this process, H Group claimed that investigators had engaged in illegal investigative methods, such as viewing employees' text messages without a warrant and recording statements without consent, and filed a lawsuit to cancel the order to submit materials along with an application for an injunction to stay execution. The Seoul High Court granted the injunction application last September, suspending the effect of the order to submit materials for a certain period. This is said to be the first time a company has filed a lawsuit challenging the KFTC's order to submit materials itself.
There is also a case where the opposite conclusion was reached. The KFTC launched an on-site investigation to verify whether C Company violated the Large-Scale Distribution Business Act, such as allegations that it passed on discount costs to suppliers. However, the investigation fell through as C Company did not comply on the grounds that there was no prior notice, and the KFTC withdrew from the site.
The issue was the obligation for prior notice under Article 17 of the Framework Act on Administrative Investigations. This provision, in principle, requires notice in writing at least 7 days before the start of an investigation, but creates an exception when the purpose of the investigation cannot be achieved due to the destruction of evidence, etc. C Company argued that since the Large-Scale Distribution Business Act is not excluded from the application of the Framework Act on Administrative Investigations, the prior notice obligation must apply. It also raised the issue that the listing of allegations in the investigation notice was excessively comprehensive.
On the other hand, the KFTC’s position was that the Large-Scale Distribution Business Act mutatis mutandis applies the investigation procedures under the Fair Trade Act, so the prior notice obligation does not apply. The Seoul High Court dismissed the injunction application in late September. The judgment was that if the effect of the investigation were stopped, the impact on public welfare would be greater. C Company appealed the decision, and the legality of the investigation procedure will be argued separately in the merits trial.
The conclusions of the two cases were different. However, the common point is clear. The investigation procedure, which had remained in the realm of practice, has risen as an issue to be judged by the court. Of course, the KFTC’s position is also understandable. The KFTC emphasizes that on-site investigations are based on the consent of the investigatee and are essentially different from criminal search and seizure. It has also emphasized that fair trade-related laws are devices to protect the rights and interests of the economically vulnerable. The concern that whether an investigation begins should not depend on the company’s response is also worth listening to. This is because if an investigation loses its effectiveness, the damage ultimately returns to the vulnerable in the transaction.
However, one thing needs to be pointed out. As the weight of sanctions increases, the demand for legitimacy in the process leading to those sanctions also increases. If fines reach billions or tens of billions of won and the reward for cooperation becomes difficult to predict, companies have no choice but to ask for the basis of every step from the investigation stage and prepare with lawsuits in mind. Among the corporate officials I have met, some have said that this trend will actually serve as an opportunity to take our fair trade laws and administrative procedure legislation to the next level.
In that sense, the current conflict can be a good opportunity to refine the system. Specifying the investigation purpose and allegations in the investigation notice more concretely than now can be the starting point. Establishing clear standards for the viewing and submission of personal digital devices such as mobile phones, organizing criteria for judging exceptions to prior notice, and designing incentives for investigation cooperation to be predictable are also worth considering. If such standards are established, the effectiveness of the investigation and the defense rights of the investigatee will not be conflicting values, but values that can be protected together. Companies also need to recognize investigation response not as an ad-hoc negotiation but as a prepared procedure, and need to have data management and response systems in place in daily operations.
It is difficult to conclude which is more desirable: the past practice where the target and scope of the investigation were determined through unofficial consultations, or the current appearance of asking for the basis at every stage of the investigation and seeking the court’s judgment. One thing is certain: as long as news of rising levels of administrative sanctions continues, companies will, unlike in the past, seek to dispute the procedure itself based on thorough preparation. It is now time to refine the rules together so that this contention does not become a war of attrition.