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Korea doubles fines for accounting fraud, threatens to sanction involved executives

Published: 27 Aug. 2025, 19:04 Updated: 27 Aug. 2025, 19:32

Securities and Futures Commission (SFC) Chairman Kwon Dae-young speaks during the SFC's 15th regular meeting at the government complex in Jongno District, central Seoul, on Aug. 27. [YONHAP]

Authorities plan to nearly double fines for companies and individuals found guilty of deliberate accounting fraud and introduce new penalties for corporate leaders who order such misconduct.

The move comes in response to President Lee Jae Myung’s directive to strictly punish accounting manipulation, a major driver of unfair trading practices.

The Securities and Futures Commission (SFC) under the Financial Services Commission (FSC) announced the measures at its 15th regular meeting on Wednesday during which it approved a plan to strengthen sanctions on accounting fraud.

Under the new rules, deliberate accounting fraud, such as tampering with or falsifying audit materials, will face fines on par with those imposed for unfair trading.

The maximum fine for intentional accounting fraud will rise from the current 15 percent to 20 percent of the fraudulent amount. For example, if the amount in question is 10 billion won ($7.16 million), fines would rise from a maximum of 1.5 billion won to 2 billion won.

For prolonged violations, fines will increase further. Intentional fraud lasting more than one year will incur a 30 percent surcharge for each additional year. For “gross negligence” cases, violations lasting more than two years will face a 20 percent surcharge per year.

The FSC's calculations based on the past three years show that the new standards would increase corporate fines approximately 1.5 times and individual fines about 2.5 times.

Securities and Futures Commission (SFC) Chairman Kwon Dae-young speaks during the SFC's 15th regular meeting at the government complex in Jongno District, central Seoul, on Aug. 27. [NEWS1]

The government also plans to close a loophole that exempted corporate heads and executives from fines if they did not directly receive salaries. Under current law, fines can only be imposed on individuals receiving compensation from the company. This means that controlling shareholders or group heads who directed fraud but received no formal pay were not liable.

Going forward, even those who did not receive direct salaries but benefited financially from accounting fraud — including through subsidiary compensation or dividends — will be subject to fines.

The system of fine reductions will also be revised. Currently, penalties can be reduced if corrective action is taken after fraud is discovered, such as restating financial statements with a 20 to 30 percent reduction or compensating victims with a 50 percent reduction.

Critics argued that this unfairly benefited former executives responsible for the fraud if new management undertook the corrective steps. Under the new rules, such reductions will not apply to past management.

Authorities also plan to impose strong sanctions on acts that obstruct internal monitoring bodies or external auditors, treating them as deliberate accounting fraud. Repeated violations previously treated as "errors" will face stricter penalties.

At the same time, incentives will be available: Fines could be fully waived for companies that uncover and correct fraud through their internal audit systems.

“The government will hold those who undermine trust in capital markets fully accountable,” said SFC Chairman Kwon Dae-young. “Deliberate accounting fraud is a serious crime, and we will impose strict sanctions.”

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.
BY KIM NAM-JUN [[email protected]]