Reporting Fraud to the Prosecutor

When a party to a contract fails to perform the terms of the contract, or when a debtor fails to repay their debts, it is common to use the Korean civil court system (filing a civil suit, compulsory execution, etc.) to force contract performance or recover damages suffered as a result of the breach of the contract.

 

However, in addition to the civil court system, it is common for attorneys to also file criminal charges against the breaching party.

 

This does not mean that everyone who breaches a contract or fails to pay a debt can be criminally charged. A party who, from the beginning, did not have the intent or the monetary means to fulfill the contract, but still entered into the contract, received a benefit, and then breached the contract, can be charged with criminal fraud. In the same manner, a debtor who borrows money without he intent or the means to repay the loan can be charged with criminal fraud.

 

For example, Company A located in South Korea enters into a contract with Company B located in the U.S. for the sale of 1,000 tons of copper at 1,000,000 U.S. dollars. Company B sends 100,000 U.S. dollars as a deposit. However, Company A never had 1,000 tons of copper available for sale, and thus breaches the contract. In that case, Company A will sue Company B in civil court and simultaneously file a complaint with the prosecutor's office to bring criminal fraud charges against Company B.

 

The reasons why an aggrieved party would want to also file criminal charges against the breaching party or the unpaying debtor is because, the fear of a guilty verdict will encourage the breaching party to quickly settle. This is because if the breaching party settles before the trial is over, the fraud charges may be dropped or a sentence may be suspended. Even after the defendant is found to be guilty for criminal fraud, many parties will still settle with the victim in order to receive a lesser punishment, especially if it helps them avoid jail time.

Especially, there are situations were the aggrieved party is successful in the civil litigation, but the breaching party does not have any funds under their name to pay for damages, so the aggrieved party cannot recover any funds lost as a result of the contract breach.

 

However, if the breaching party is also found guilty of criminal fraud and sentenced to jail; before filing an appeal, the breaching party will try to settle with the aggrieved party, by using funds not under their name, to try to get a more favorable sentence during the appeals process. This way, a party was unsuccessful in recovering damages in civil court can still get paid.

This is the reason why an attorney always researches the possibility of reporting criminal fraud while filing a civil suit for a breach of contract or to recover monies owed by a debtor.