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South Korea’s new graft law strikes deep into corporate culture
South Korea’s tough new law on wining and dining and public servants is aimed at curbing widespread corruption. But it has sparked outcry over fears that it could dampen consumer spending and even spark social turmoil in a country where gift-giving and entertaining function as important business and social lubricants.

The Improper Solicitation and Graft Act, dubbed the “Kim Young-ran law” after the former judge who drafted it, takes effect on September 28.

The law applies to an estimated 4m people, mostly civil servants but also journalists and private-school teachers and their spouses.

Its measures fall into two broad categories. The first outlaws any request to public employees to engage in improper conduct related to their duties, even if no money changes hands. The law lists 14 examples, including interfering with personnel decisions or investigations. The intent is to stop people using social positions or connections to pull strings.

The second category imposes strict limits on monetary and other gifts. Current law already forbids the exchange of money for favours, but proving intent can be difficult. The new law prohibits all but the smallest payments regardless of intention. Any public servant found to have accepted a gift of more than Won1m ($893), for example, faces a jail term of up to three years or a fine of up to Won30m. The same applies to the giver.

But the law also covers much smaller transgressions. While both sets of restrictions are likely to drive big changes in South Korean society, it is the limits on gifting that have attracted the greatest attention as they deal directly with the country’s deeply ingrained culture of business entertainment.

The new law prohibits public employees from accepting meals worth more than Won30,000, gifts valued at more than Won50,000 and congratulatory or condolence payments of more than Won100,000. These figures are far below what South Koreans typically shell out for entertaining and other social obligations.

For example, gifts are habitually exchanged between acquaintances and business connections during the Chuseok holiday in late September. Fruit baskets and sets of canned goods typically costing Won70,000 to Won80,000 are popular choices, according to one employee at Lotte Department Store’s flagship branch. Chuseok gifts to public employees will be subject to the new law.

At private gatherings, one person — often the oldest — typically foots the bill. This could be illegal if any public servants are present.

The Anti-Corruption and Civil Rights Commission published guidelines on September 13 for workers in various fields. It notes that receiving a Won30,000 meal followed by a Won6,000 coffee would be illegal.

Some ambiguity remains. It is unclear, for example, whether buying a Won50,000 meal for a former classmate working at a city government office would be illegal. And while gifts valued up to Won1m are permissible if they bear no relation to the receiver’s duties, determining whether a gift is work-related will depend on how the law is implemented.

“We’ve been told to just sit on our hands for now,” said one senior executive at a business conglomerate.

Foreigners will have to obey the law, too.

“If the rules become clearer, of course I’ll follow them, but the vagueness about what the law covers worries me,” said one senior employee at the South Korean arm of a Japanese company.

Businesses are also concerned about the threat to consumer spending. The Federation of Korean Industries predicts annual losses of Won8.5tn for the restaurant industry alone, and Won11.6tn across the South Korean economy.

The law’s coverage of private-school employees and members of the media has provoked an outcry from those affected. Many filed petitions questioning the law’s constitutionality, on the grounds that it threatened freedom of speech and independence in education. The Constitutional Court upheld the law in July.

South Korea has seen numerous cases involving excessive and potentially inappropriate entertaining. The chief editorial writer at the Chosun Ilbo newspaper was forced to step down recently after a ruling party lawmaker said he travelled to Europe at the expense of Daewoo Shipbuilding & Marine Engineering, which is now being investigated over alleged accounting discrepancies.

Reconciling the government’s goal of stamping out corruption with the country’s entrenched entertaining culture will be no easy task.