[비즈한국] Companies sometimes make decisions that are difficult to explain by money alone. Understanding the laws and systems hidden within them can provide a deeper insight into the inner workings. ‘Useful Business Law’ introduces clues to help understand the flow of business.
There are scenes where the term "corporate execution" seems more fitting than just "punishing those who commit crimes." It involves imposing extremely heavy sanctions on the wrongdoer in the name of justice. From an outside perspective, it feels satisfying at first. However, after a little time passes, a feeling of discomfort remains: "Was it really necessary to go that far?" Even so, in reality, it is not uncommon for extreme sanctions to be imposed for various reasons, such as the flow of public opinion, pressure on regulatory agencies to show results, the desire of officials to make a name for themselves, or the implementation of specific policy goals.
Viewed in this light, the principle of lex talionis (retaliation in kind) from the Code of Hammurabi, represented by "an eye for an eye, a tooth for a tooth," is unexpectedly rational. Although commonly known as a symbol of harsh revenge, when turned on its head, it is a norm that sets an upper limit on sanctions: "only as much as the damage inflicted, and no more." It is, in essence, the prototype of the modern principle of proportionality from laws written thousands of years ago.
What level of sanction is appropriate for a business that violates fair trade laws? The issue lies in the amount of the fine. Fines for collusion are calculated by multiplying the relevant revenue by a base rate according to the Korea Fair Trade Commission (KFTC) notice and then applying adjustments. Since the formula is fixed, it was considered an area where the amount itself was not heavily disputed in practice, and the courts have broadly recognized the KFTC's discretion regarding whether to impose fines and the specific amounts.
However, there are limits to such discretion. The Supreme Court holds that fines for bid rigging must be balanced not only with the degree of illegality but also with the scale of the gains resulting from it, and that losing this balance violates the principle of proportionality, constituting an deviation or abuse of discretionary power. Two rulings by the Seoul High Court are cases where this legal principle was actually applied.
The first is the Ready-mix Concrete Cooperative case (Seoul High Court 2019. 9. 18. Decision 2018Nu79119). In 2015, three regional ready-mix concrete cooperatives agreed that each would win bids in its respective jurisdiction and act as a sham bidder in adjacent areas for government-supplied ready-mix concrete projects. The KFTC issued a corrective order and imposed total fines of approximately 7 billion KRW (2.29 billion, 2.133 billion, and 2.596 billion KRW, respectively).
The court acknowledged the collusion itself and found the corrective order lawful, but it canceled the order to pay the fines. The profits from the collusion went to the member companies that actually delivered the concrete, while the cooperative only received a commission of 0.7–1.0% of the allocated amount. Even applying the maximum commission rate, the cooperative's profit was only about half of the fine, creating a structure where the cooperative had to pay twice the amount it earned, effectively confiscating more than their entire gain.
The cooperatives were already in a state of net loss, raising concerns that paying the fine once would erode their capital contributions. The court determined that "there is a probability that they would no longer be able to exist before fully paying the fines." Ready-mix concrete must be poured within 90 minutes, making it difficult for small-scale businesses to participate in government-supplied bids without the cooperative. The court found that the KFTC had not sufficiently considered the inherent functions and the viability of these cooperatives.
The second is the PHC pile (concrete pile) cooperative case (Seoul High Court 2020. 12. 2. Decision 2020Nu44765). The cooperative, along with 17 manufacturers, engaged in bid rigging for government-supplied PHC piles for about six years. The KFTC imposed a fine of 3.91 billion KRW, using the entire contract amount of approximately 273.3 billion KRW signed under the cooperative's name as the relevant revenue. However, it did not impose fines on the member companies that actually delivered the goods and earned the profits.
The court also canceled these fines. The profit earned by the cooperative was a commission of about 1.619 billion KRW, which is 0.6% of the contract amount, but the fine was about 2.4 times that profit. The fine was greater than the sum of the capital and surplus (1.9 billion KRW), and their cash-equivalent assets at the time of the disposition were only 1.95% of the fine.
The court also deemed it inequitable for the cooperative, which only received commissions, to bear the entire burden while the member companies that took most of the profits were left out. A point worth noting is the judgment regarding the KFTC's claim that "the cooperative did not submit financial statements, so there is no need to consider their ability to pay." The court did not accept this, stating that the fine notice is merely an internal administrative rule, and there was no evidence that the KFTC gave them sufficient opportunity to submit materials or conducted the investigation thoroughly itself. It also determined that allowing the fine to be paid in 6 installments over 2 years after the disposition was irrelevant to whether the amount was excessive.
These two cases have commonalities. Although the KFTC did reflect the commission structure or ability to pay as grounds for partial reduction, the core circumstances—the actual amount of profit and the possibility of continued existence—were only properly evaluated at the litigation stage. Is a fine that amounts to several times the actual profit justified? Is it justified to impose an amount calculated by a formula onto a business that effectively lacks the ability to pay? Is it a natural consequence for a business to close its doors because of a fine? These are issues that need to be seriously considered.
Recently, controversy has been growing not only over the level of sanctions but also the methods. This year, the KFTC imposed a record-high fine of 671 billion KRW for flour price-fixing, and in the paper and flour collusion case, it even issued a "price redetermination order" to set prices again. However, the Seoul High Court accepted the companies' applications last September and suspended the execution of this order. In a market economy, it is necessary to look back on whether we are too easily choosing strong measures, even though many questions remain regarding who is justified in setting prices and how, and whether the state can set prices on behalf of businesses.
A fine is both a sanction for a violation and a means to confiscate unjust gains. Sometimes, sanctions heavier than the gains are needed for deterrence. However, if a sanction grows regardless of the scale of the violation to the point of cutting off a business's very existence, it ceases to be a restoration of market order and becomes the act of erasing a market participant. Especially in structures like cooperatives where they only receive commissions and the contract amount differs significantly from the actual profit, one should confirm the actual gains and ability to pay before mechanically applying a formula. Businesses should also actively submit financial data and profit structures from the investigation and deliberation stages to make this a key issue.
An appropriate level of sanctions for legal violations has been taken too lightly so far. What the Code of Hammurabi’s "an eye for an eye, a tooth for a tooth" teaches is not the legitimacy of revenge, but the necessity of restraint. Now is the time for reflection.