[1] The meaning of "the custody of a thing" in embezzlement

[2] Whether embezzlement is established where a shareholder, representative director, etc. arbitrarily disposes of the property owned by the corporation for private purposes, such as providing a security for a third party’s financing (affirmative)

[3] In a case where the defendant was prosecuted for embezzlement by withdrawing deposits owned by the company after acquiring management rights of the company and using them for repaying loans to acquire the above company, the case affirming the judgment below convicting him

[4] The scope of the application of Article 20 (4) 1 of the Act on External Audit of Stock Companies, and whether the act of offering false data to an auditor in charge of confirmation and commenting on the financial statements contained in a half-yearly or quarterly report is subject to punishment under the same Article (negative)

[5] In a case where the defendant was prosecuted for violating the Act on External Audit of Stock Companies because he/she presented false data to a certified public accountant to whom an auditor belongs or interfered with the normal external audit by an auditor by fraud or other improper means, the case holding that the judgment below which found the defendant guilty erred by misapprehending the legal principles

[1] In the crime of embezzlement, “the custody of a thing” refers to the state of actual or legal control over the property, and the custody of the thing should be based on the consignment relationship, as well as on the trust relationship. However, it is not necessarily required to be established by a contract such as loan of use, lease, delegation, etc., and may also be established by administrative management, customs, cooking, and trust regulations.

[2] Since a stock company is an independent right holder separate from shareholders, it does not necessarily coincide with its understanding. Thus, if a shareholder, representative director, or a person in charge of de facto business relating to the custody or management of company funds disposes of the company's property for private purposes, such as providing it as collateral for a third party's financing, etc., the company cannot be exempted from liability for embezzlement regardless of whether there was a resolution of the general meeting of shareholders or the board of directors

[3] In a case where the Defendant was prosecuted for embezzlement by withdrawing the deposit owned by Company A after acquiring management rights of Company A and using the Defendant’s repayment of loans to acquire Company A, the case affirming the judgment below convicting the Defendant on the ground that he was in the status of a person holding the above deposit, in light of the fact that three directors were elected at a general meeting of shareholders immediately before the withdrawal of the above deposit, thereby acquiring the status of actual operator of Company A

[4] In light of the provisions of the Act on External Audit of Stock Companies (hereinafter “Auditor”) and the Enforcement Decree of the External Audit Act, and the language and text of Article 20(4)1 of the External Audit Act, Article 20(4)1 of the Act on External Audit is interpreted as a penal provision punishing an auditor who interferes with the external audit of financial statements subject to the regulation of the External Audit Act. Therefore, even if a false material was presented to an auditor in charge of confirmation and comment on financial statements included in a half-yearly or quarterly report prepared and submitted by a stock-listed corporation and a KOSDAQ-listed corporation, etc. pursuant to Article 160 of the Financial Investment Services and Capital Markets Act, it shall not be punished by applying Article 20(4)1 of the External Audit Act.

[5] In a case where the defendant was prosecuted for violating the External Audit Act on the ground that in collusion with the representative director, etc. of Gap corporation, the defendant deposited funds raised through Eul corporation's company Eul into the company's account and submitted a copy of the passbook to the certified public accountant as if the performance bond was recovered, and immediately withdrawn the above funds and returned them to Eul, thereby hindering the auditor's normal external audit, the case holding that the judgment below which found the defendant guilty on the ground that it did not constitute an act interfering with external audit under Article 20 (4) 1 of the External Audit Act, and there was no evidence that the defendant interfered with the external audit by presenting false data to the auditor who audited Gap company's financial statements

[1] Article 355 (1) of the Criminal Code / [2] Articles 355 (1) and 356 of the Criminal Code / [3] Articles 355 (1) and 356 of the Criminal Code, Article 3 (1) 1 of the Act on External Audit of Stock Companies, Article 20 (4) 1 of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes / [4] Article 30 of the Criminal Code / [5] Article 30 of the Criminal Code, Article 20 (4) 1 of the Act on External Audit of Stock Companies, Article 160 of the Financial Investment Services and Capital Markets Act, Article 307 of the Criminal Procedure Act

[1] Supreme Court en banc Decision 97Do666 Decided April 15, 199 (Gong199Sang, 978) Supreme Court Decision 2003Do3840 Decided September 23, 2003, Supreme Court Decision 2005Do7610 Decided January 12, 2006 / [2] Supreme Court Decision 2005Do3045 Decided August 19, 2005 (Gong2005Ha, 1536) (Gong207Do6012 Decided October 11, 207) / [4] Supreme Court Decision 2008Do4068 Decided July 10, 2008

Defendant

Defendant

Law Firm Seoho et al.

Seoul High Court Decision 2010No1536 decided December 2, 2010

The judgment below is reversed and the case is remanded to Seoul High Court.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed).

1. As to the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement)

In the crime of embezzlement, the term "the custody of property" means the actual or legal control over the property and the custody thereof must be based on the consignment relationship. However, it does not necessarily require that it is established by a contract such as loan of use, lease, delegation, etc., and may also be established by administrative management, custom, assistance, trust rule, etc. (see, e.g., Supreme Court Decision 2003Do3840, Sept. 23, 2003). In addition, if a shareholder, representative director, or a person in charge of actual affairs related to the custody or management of company's funds disposes of the company's property for private purposes, such as providing the company's property as security for financing to a third party, it is not necessarily exempt from the liability for the crime of embezzlement, regardless of whether there was a resolution of the general meeting of shareholders or the board of directors on such disposal (see, e.g., Supreme Court Decision 2005Do3045, Aug. 19, 2005).

The court below acknowledged the facts as indicated in its reasoning based on its adopted evidence, and determined that the Defendant embezzled KRW 33 billion of the instant deposit under the pretext of taking over 30% of the shares of Nonindicted Co. 2 by deceiving Nonindicted Co. 3 and Nonindicted Co. 2’s de facto manager at the general meeting of shareholders of Nonindicted Co. 1, in light of the following: (a) the Defendant acquired the status of actual operator of Nonindicted Co. 1, by selecting three directors at the general meeting of shareholders of Nonindicted Co. 1, immediately before withdrawal of the instant deposit money owned by Nonindicted Co. 1; and (b) the Defendant, even though he did not hold 30% of the shares of Nonindicted Co. 2, even though he did not hold 30% of the shares of Nonindicted Co. 3 and Nonindicted Co. 2, by deceiving Nonindicted Co. 4, etc., to Nonindicted Co. 2’s account in the name of taking over 30 billion of shares of Nonindicted Co. 2, 2

In light of the above legal principles and records, the above fact-finding and judgment of the court below are justified.

The court below did not err by violating the rules of evidence or by misapprehending the legal principles as to the custodian's status in embezzlement, as alleged in the grounds of appeal.

2. As to the violation of the Act on External Audit of Stock Companies

The lower court found the Defendant guilty of this part of the charges that, in collusion with Nonindicted 6’s representative director of Nonindicted Company 1 and other officers, the Defendant deposited KRW 14.5 billion raised through Nonindicted 7’s corporate bank account in collusion with Nonindicted 7 around August 14, 2009, and submitted a copy of the passbook to Nonindicted 1’s corporate bank account, as if the amount of KRW 14.5 billion was recovered, then immediately withdrawn the above funds and returned it to Nonindicted 7, thereby presenting false data to the certified public accountant belonging to the auditor, or interfering with the auditor’s normal external audit by fraud or other improper means.

However, we cannot accept the above determination by the court below for the following reasons.

Article 20(4)1 of the Act on External Audit of Stock Companies (hereinafter “ External Audit Act”) provides that any person provided for in Article 635(1) of the Commercial Act or any other person in charge of accounting affairs of a company subject to external audit shall present false data to an auditor or a certified public accountant belonging thereto or punish an auditor by fraud or other improper means. However, under the Enforcement Decree of the same Act, a company subject to external audit shall prepare financial statements for the pertinent business year and submit them to an auditor six weeks prior to the regular general meeting of shareholders, and the auditor shall prepare an audit report and submit it to the company one week prior to the regular general meeting of shareholders, and the company shall also keep and disclose the financial statements and the audit report of the auditor at the head office for five years prior to the regular general meeting of shareholders. In light of the above provisions and the language and text of the penal provision, it is interpreted that Article 20(4)1 of the External Audit Act provides that the act of interfering with the external audit of the settlement of accounts subject to the external audit Act, including Article 160(2) of the Financial Investment Services and Capital Markets Act, shall not be punished.

According to the records, around August 14, 2009, the Defendant appears to have presented false data to the certified public accountants belonging to Nana Accounting Corporation in charge of the confirmation and comment on the financial statements for the fiscal year 2009 half-year. However, this cannot be deemed to constitute an act interfering with the normal external audit of an auditor provided for in Article 20(4)1 of the External Audit Act. Furthermore, there is no evidence that the Defendant interfered with the external audit by presenting false data to the auditor who audited the financial statements for the fiscal year 2009.

Nevertheless, the court below found this part of the charges guilty is erroneous in the misapprehension of legal principles as to the scope of application of interference with external audit under the External Audit Act or failing to exhaust all necessary deliberations, which affected the conclusion of the judgment.

The ground of appeal pointing this out is with merit.

3. Scope of reversal

Therefore, the part of the judgment of the court below which found the defendant guilty of violating the External Audit Act should be reversed. However, since the court below found the defendant guilty of all the facts charged against the defendant and sentenced one punishment to the defendant by deeming him as concurrent crimes under the former part of Article 37 of the Criminal Act, the judgment of the court below against the defendant

4. Conclusion

Therefore, the judgment of the court below is reversed, and the case is remanded to the court below for a new trial and determination. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Chang-soo (Presiding Justice)