Employment Restriction Under Korea’s Specific Economic Crimes Act

After a corporate executive receives a suspended prison sentence for breach of trust, may they keep serving as a director of an affiliated company once the judgment becomes final? It might seem that “the sentence is not yet complete during probation,” so the restriction would not apply. In South Korea, the answer is the opposite, and that fine distinction can lead to forced resignation and even criminal punishment.

In an actual case, a listed-company CEO (referred to here as X) was convicted of breach of trust under the Specific Economic Crimes Act for improperly causing a subsidiary to lend its funds to his son, receiving a sentence of three years’ imprisonment suspended for five years. After the judgment became final, X was reappointed as CEO of three affiliated companies during the probation period and later applied to the Minister of Justice for approval to work. The Minister refused, and the central issue was whether the probation period counts toward the employment-restriction period. The appellate court and the Supreme Court reached opposite conclusions, and ultimately the Supreme Court held that the probation period does count (Supreme Court Decision 2022Du44354, October 27, 2022). This article explains the basis for that holding and the scope of companies subject to the restriction.

1. What is the employment restriction under Article 14 of Korea’s Specific Economic Crimes Act?

Article 14 of South Korea’s Specific Economic Crimes Act (teukgyeongbeop) prevents a person convicted of certain economic crimes — such as fraud, embezzlement, and breach of trust — from working, for a defined period, at companies closely related to the convicted offense. Its purpose is to establish a sound economic order and contribute to the development of the national economy (Article 1 of the Act).

Article 14(1) provides that a person convicted under Article 3, Article 4(2) (including attempts), Article 5(4), or Article 8 may not, for the periods set out in each item, work at financial companies, institutions partly or wholly funded or subsidized by the State or local governments, and companies closely related to the convicted offense. Under the proviso, however, the person may work if granted approval by the Minister of Justice as prescribed by Presidential Decree.

The “specific economic crimes” referred to here are offenses such as fraud, extortion, embezzlement, and breach of trust under the Korean Criminal Act where the gain obtained — by the offender or by a third party — is 5 billion won or more (Article 3 of the Act). The Constitutional Court of Korea explained that the purpose of the restriction is to impose a disadvantage beyond aggravated punishment, removing the incentive or motive for specific economic crimes and preventing the offender from exercising influence or control over related companies (Constitutional Court Decision 2021HeonBa46, February 26, 2026).

2. Who is subject to the restriction in South Korea, and for how long?

The restricted person is someone convicted under Article 3 and related provisions, and the period depends on the type of sentence. For a suspended prison sentence in particular, the restriction runs from the time the conviction becomes final until two years after the probation period expires — meaning the probation period itself is included.

For a suspended sentence, the wording “two years from the date the probation period expires” might suggest that the restriction begins only after probation ends. The interpretation of this wording divided the lower court and the Supreme Court, and that dispute is the key issue addressed below.

3. Does the probation period count toward the employment-restriction period?

Yes. The Supreme Court of Korea held that the phrase “two years from the date the probation period expires” in Article 14(1), item 2 defines the end point of the restriction, that the restriction begins when the conviction becomes final, and that the probation period therefore counts toward the employment-restriction period (Supreme Court Decision 2022Du44354, October 27, 2022).

The appellate court had interpreted it the other way. The Seoul High Court reasoned that the phrase “for the periods set out in each item” includes both the start and the end of the restriction, so item 2 sets the start at “the date the probation period expires” and the end at “two years” thereafter — meaning the probation period is not included (Seoul High Court Decision 2021Nu35485, May 19, 2022). On that basis, a person still within the probation period was not within the restriction period, had no reason to seek approval, and the refusal was therefore unlawful.

The Supreme Court reversed this decision, holding that the probation period is included, for the following reasons.

First, because the main text of Article 14(1) defines the restricted person as “a person who has received a conviction,” the start of the restriction can be read as “the time the conviction becomes final,” with each item defining the end point — an interpretation that does not exceed the ordinary meaning of the wording.

Second, Article 14(1) sets different restriction periods according to the type and severity of the sentence. If each item were read as setting both the start and the end, a suspended sentence (item 2) and a suspended imposition of sentence (item 3) would both yield a two-year period, defeating the purpose of distinguishing them; and the period would be a uniform five years or two years regardless of the severity of the sentence, which is inconsistent with setting different periods by severity.

Third, if each item set both the start and the end, the offender could work at related companies without any restriction from the time the conviction becomes final until the prison term or probation period ends, with the restriction taking effect only afterward. That would undermine the legislative purpose of the restriction and is not an objectively sound interpretation; restricting work during the prison term or probation period instead better serves the purpose of the system.

In short, while a lower court had held that the probation period is not included (Seoul High Court 2021Nu35485), the Supreme Court reversed that holding, settling the interpretation that the probation period does count toward the employment-restriction period. Any explanation premised on excluding the probation period is therefore no longer valid.

4. Which “related companies” fall within the scope of the restriction?

The scope of companies closely related to the convicted offense is defined in six categories under the Presidential Decree (Enforcement Decree Article 10(2)). It covers investments or positions held by accomplices or beneficiaries (third parties), companies that gained or suffered loss from the crime, and even companies in which those companies have invested (subsidiaries).

The six items of Enforcement Decree Article 10(2) are as follows.

• Item 1: A company in which an accomplice of the convicted person, or the accomplice’s lineal ascendants/descendants, siblings, or spouse, has invested, where the combined investment is at least 5% of total issued shares or capital.
• Item 2: A company in which an accomplice was or is an officer, or a senior staff member at or above the level of manager, at the time of the offense or currently.
• Item 3: A company that gained a financial benefit from, or suffered financial loss from, the convicted offense.
• Item 4: A company in which a third party who gained a financial benefit from the offense, or that third party’s lineal ascendants/descendants, siblings, or spouse, has invested at least the 5% threshold in item 1.
• Item 5: A company in which the third party under item 4 was or is an officer, or a senior staff member at or above the level of manager, at the time of the offense or currently.
• Item 6: A company in which any company falling under items 1 through 5 has invested at least the 5% threshold in item 1.

This case is a classic application of items 4 and 6. The parent company (C) fell under item 4 because a third party who profited from the crime — X’s son (A) — held 7.17% of its shares; and because C held 100% of company D and 50% of company E, both D and E fell under item 6. In other words, even a company at which the offender never personally worked can be drawn into the restriction through a beneficiary’s shareholding and the corporate group’s structure.

Beyond these “related companies,” financial companies and institutions funded, subsidized, or supported by the State or local governments are also subject to the restriction (Article 14(1) main text), with the specific list set out in the Enforcement Decree’s appended tables.

5. How did the courts in South Korea rule in this case?

CEO X received a suspended prison sentence for breach of trust, was reappointed as CEO of three affiliated companies during the probation period, and was refused approval to work by the Minister of Justice. In the administrative litigation, the first-instance court and the Supreme Court reached one conclusion while the appellate court reached the opposite; after the Supreme Court reversed the appellate decision, the challenge ultimately failed.

The facts, anonymized, are as follows. X, the CEO of parent company C and a registered director of subsidiary B, conspired with the CEO and others of B to lend B’s funds to his son A without adequate review of financial condition or repayment ability and without securing collection, thereby causing A to gain a financial benefit and B to suffer a financial loss. For this, X was convicted of breach of trust under the Specific Economic Crimes Act and, on October 24, 2014, sentenced to three years’ imprisonment suspended for five years (Seoul High Court Decision 2014No341); the judgment became final on November 29, 2018 (Supreme Court 2014Do15128). At first instance, the sentence had been two years and six months’ imprisonment suspended for four years (Seoul Southern District Court Decision 2011GoHap514).

During the probation period, in March 2019, X was reappointed as CEO of companies D and E and then of company C. As noted, C fell under Enforcement Decree Article 10(2)4, and D and E under item 6. X applied to the Minister of Justice on February 28, 2020 for approval to work as CEO of these companies, but on May 26, 2020 — after a meeting of the Management Committee for Specific Economic Offenders — the Minister refused, citing the offender’s age, character, intelligence and environment, relationship with the victim, motive, means and result of the offense, circumstances after the offense, and other public interests (the “Disposition”).

The outcomes by instance were as follows.

After the Supreme Court reversed and remanded, X withdrew the appeal during the remand proceedings, so the first-instance judgment dismissing the claim became final, and the refusal of approval stood. X had also resigned from all three CEO positions during the litigation, on June 15, 2021.

6. Did the Constitutional Court of Korea uphold the provision?

Yes. On February 26, 2026, the Constitutional Court of Korea held that both the employment-restriction provision and the delegation provision of Article 14 are constitutional (Constitutional Court Decision 2021HeonBa46). It found no violation of the principle of statutory reservation, the prohibition of comprehensive delegation, or the freedom to choose one’s occupation.

Statutory reservation. The Court characterized the Minister of Justice’s approval to work as an administrative disposition that exceptionally lifts an already-effective restriction, and as a discretionary act deciding, on a case-by-case basis, whether to allow employment. Because such approval is beneficial to the restricted person, the Court held that its requirements, methods, and standards are not essential matters that must be fixed directly by statute.

Freedom to choose an occupation. The Court held that the restriction does not violate the principle against excessive restriction. Given that specific economic crimes are fundamentally driven by the pursuit of profit, typical criminal sanctions alone have limits, and the restriction is an effective means of curbing such crimes because it directly prevents the offender from exercising influence or control over related companies. The Court also found the least-restrictive-means and balance-of-interests requirements satisfied, noting that the target offenses are limited to gains of 5 billion won or more, the target companies are limited to related companies, the period is limited, and the Minister’s approval mechanism mitigates the restriction.

Prohibition of comprehensive delegation. The Court held that the delegation provision, by using the standard “companies closely related to the convicted offense,” allows the scope of companies to be defined in the Presidential Decree to be sufficiently foreseen, and therefore does not violate the prohibition of comprehensive delegation.

7. What are the penalties for violation, and is approval to work available?

If the restriction is violated, the Minister of Justice may demand that the head of the company dismiss the person, and a violator may face imprisonment of up to one year or a fine of up to 5 million won (Article 14(4) and (6) of the Specific Economic Crimes Act). Working is possible only with the Minister’s approval (the proviso to Article 14(1)).

Where a person violates the restriction, the Minister of Justice may demand that the head of the company at which the person works dismiss them (Article 14(4)), and a person who violates the restriction is subject to imprisonment of up to one year or a fine of up to 5 million won (Article 14(6)). Because the restriction can lead beyond administrative consequences to criminal punishment, the provision is applied strictly.

A person seeking to work may apply to the Minister of Justice at least one month before the intended start date (Enforcement Decree Article 13). The Minister decides after deliberation by the Management Committee for Specific Economic Offenders, giving the greatest respect to the Committee’s opinion. The Committee is composed of members able to consider both the legal aspects of the offense and the national-economic dimension, and it reviews approval considering the offender’s age, character, intelligence, and environment, the relationship with the victim, the motive, means, and result of the offense, the circumstances after the offense, and other public interests (Constitutional Court Decision 2021HeonBa46, February 26, 2026). A refusal can be challenged through administrative litigation, as in this case.

8. What should companies and executives keep in mind in South Korea?

Probation is no safe harbor. The restriction applies from the moment the conviction becomes final, and the scope of restricted companies can reach beyond the company where the offense occurred to affiliates across a corporate group.

First, the restriction applies immediately during the probation period. Keeping or newly taking an officer position at a related company after the conviction becomes final — on the assumption that probation is a grace period — can constitute a violation.

Second, the scope of restricted companies is broader than expected. It can include companies in which an accomplice or a beneficiary (third party) holds at least 5% or serves as an officer or senior manager, as well as subsidiaries in which such a company holds at least 5% (Enforcement Decree Article 10(2), items 4 and 6). In a corporate group, it is essential to review in advance which entities are restricted.

Third, anyone seeking to work should apply for the Minister of Justice’s approval at least one month in advance, and a refusal can be challenged through administrative litigation. However, now that the Supreme Court and the Constitutional Court have settled the interpretation that the probation period counts toward the restriction, arguments premised on excluding the probation period are unlikely to succeed.

This issue is also important for foreign-invested companies operating in the Incheon Free Economic Zone (IFEZ) — including the Songdo International Business District, Cheongna International City, and Yeongjong International City — where a foreign executive’s prior conviction can have unexpected effects across affiliated Korean entities. Atlas Legal advises on white-collar criminal defense and on employment-restriction and approval-to-work matters, helping clients assess the ripple effects of a conviction in advance and respond to approval applications and refusals.

Frequently Asked Questions (FAQ)

The employment-restriction period and the requirements for approval to work under South Korea’s Specific Economic Crimes Act vary from case to case. For a specific review, you may contact Atlas Legal (+82-32-864-8300, info@atlaw.kr, B-2901, 323 Incheon Tower-daero, Songdo, Incheon, South Korea).

About the Author

Taejin Kim | Managing Partner

Corporate Counseling, Corporate Disputes, White-Collar Crime

Former Public Prosecutor | Judicial Research and Training Institute, 33rd Class

Korea University LL.B. & LL.M. (Criminal Law), University of California, Davis LL.M.

Atlas Legal | Incheon Songdo, South Korea

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