[1] Where an operator or a manager of a corporation who separates and manages funds from the accounts clearly revealed that the “non-funds” was created for the purpose of returning the corporation’s funds by deducting the corporation’s funds from the accounts, whether the act of creation itself can be deemed as realizing the intent of unlawful acquisition (affirmative)

[2] The degree of proof necessary to prove that the value of the embezzled property exceeds the minimum amount which is the basis for applying the Act on the Aggravated Punishment, etc. of Specific Economic Crimes

[3] The method of determining whether a company’s manager had an intent to commit a breach of trust in relation to a business judgment

[1] Article 355 (1) of the Criminal Code / [2] Articles 355 (1) and 356 of the Criminal Code, Article 3 of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes, Articles 307 and 308 of the Criminal Procedure Act / [3] Articles 355 (2) and 356 of the Criminal Code

[1] Supreme Court Decision 94Do998 Decided September 9, 1994 (Gong1994Ha, 2679), Supreme Court Decision 2001Do5459 Decided July 26, 2002 (Gong2002Ha, 2136), Supreme Court Decision 2005Do2626 Decided June 27, 2006, Supreme Court Decision 2007Do4784 Decided February 26, 2009 / [2] Supreme Court Decision 2013Do2857 Decided May 9, 2013 (Gong2013Sang, 1072) / [3] Supreme Court Decision 2002Do4229 Decided July 22, 2004 (Gong104Ha, 204)

Defendant 1 and two others

Defendant 1 and one other and the prosecutor

Law Firm, Kim & Lee LLC et al.

Seoul High Court Decision 2015No2913 decided May 27, 2016

Of the lower judgment, the part against Defendant 1 and Defendant 3 are reversed, and that part of the case is remanded to the Seoul High Court. The Prosecutor’s appeal is dismissed in entirety.

The grounds of appeal are examined (to the extent of supplement in case of supplemental appellate briefs not timely filed by Defendants 1 and 3).

1. As to the grounds of appeal by Defendants 1 and 3

A. Of the facts charged against Defendant 1, the violation of the Act on the Aggravated Punishment, etc. of Specific Economic Crimes (Embezzlement) (hereinafter “Specific Economic Crimes Act”) and the summary of the facts charged against Defendant 3

On January 14, 2009, Defendant 1 was appointed as the representative director of the victim non-indicted 1 corporation (hereinafter referred to as "victim company") and was in office until November 12, 2013. Defendant 3 served as the representative director of the victim company as the head of GSS (Group) sector, which is the general and support department in charge of the payment of executive officers and employees after the appointment of the representative director of Defendant 1.

From March 25, 2009 to September 25, 2013, Defendant 1 and Defendant 3 conspired to pay an aggregate of KRW 2.757 billion to executive officers as indicated in the attached list of crimes in the judgment below, and embezzled KRW 1.1685 million by using the funds of KRW 1.1685 million in total after deducting part of them in advance or receiving return (hereinafter “the instant funds”) for the victim’s company, while Defendant 1 and Defendant 3 conspired to raise funds for the victim’s company, and embezzled KRW 1.1668,50 million for the purpose of personal ordinary research expenses and the payment of entertainment expenses.

B. The judgment of the court below

The court below found Defendant 1 guilty of this case’s non-indicted 3 and 4 as it is difficult to believe that Defendant 1, and Defendant 3’s statements were submitted, and it is also difficult to believe that Defendant 3 and Defendant 4’s statement were submitted, and that there was no objective evidence to prove specific spending of funds such as account books related to the use of the funds in this case’s case’s non-financial expenses, ② Defendant 1 did not know the existence of non-financial expenses, ② Defendant 1’s ordinary process for disbursement of business expenses, including cash expenses, and used it without company control, ③ Defendant 1’s ordinary process for raising the funds in this case’s non-financial expenses, ③ Defendant 1 paid most of the funds in light of light investigation expenses and encouragement, etc., and evidence of light investigation, etc. of Defendant 3’s submission consistent with the aforementioned assertion is also believed, and contrary to the above reasoning, the court below found Defendant 1 guilty of this case’s non-financial expenses.

C. Determination on Defendant 1 and Defendant 3’s grounds of appeal regarding the amount of profit in the crime of violation of the Specific Economic Crimes Act (Embezzlement)

1) For embezzlement to be established, the intent of unlawful acquisition should be expressed that the person’s property in custody is in violation of his/her duty for the purpose of pursuing the benefit of himself/herself or a third party and is actually or legally disposed of as if he/she were his/her own property. The so-called funds that are not entered in the corporate accounting book and managed separately by the operator or the manager of a corporation from the corporate accounting can be deemed as realizing the intent of unlawful acquisition by creating the funds in cases where it is evident that the funds have been created for the purpose of returning the corporation’s funds by deducting the corporate funds from the corporate accounting, not by the corporate accounting (see, e.g., Supreme Court Decision 2005Do2626, Jun. 27, 2006). In addition, even if the funds kept and managed were withdrawn and used, materials that can be deemed as having been used in the place of use where the party asserted and did not adequately explain the location or location of the funds, and in cases where materials that were used for the individual purpose are considerably more sufficient, it can be presumed that the act of unlawful acquisition constitutes an intent of unlawful acquisition.

However, in a case where the Defendants explained the whereabouts or place of use of non-capital invested funds for reasons for which it is difficult to recognize the existence of the intent of unlawful acquisition, and accordingly presented materials corresponding thereto, barring such circumstance as where the Defendants spent non-capital invested funds for other purposes once they were kept and managed for other purposes, it cannot be readily concluded that the Defendants embezzled funds by withdrawing or using the funds with intent of unlawful acquisition (see, e.g., Supreme Court Decisions 94Do98, Sept. 9, 1994; 2001Do5459, Jul. 26, 2002). Therefore, if the Defendants were to have used the funds for the purpose of keeping and managing it, whether the intent of unlawful acquisition can be recognized should be determined by comprehensively taking into account the motive, method, scale, period, method of custody and management, etc. of non-capital invested funds raised by a corporation after being kept and managed for the purpose of using them, the scope and objectivity of the funds to be used by the company, as well as the purpose of using them, should be determined in light of social norms and objectivity.

In addition, the fact that there was embezzlement as an act of realizing the intent of unlawful acquisition should be proved by strict evidence of probative value, which is sufficient to have a reasonable doubt, and if there is no sufficient evidence, the interests of the Defendants should be determined even if there is a suspicion of guilt.

Meanwhile, the crime of embezzlement under Article 355(1) of the Criminal Act and the crime of embezzlement under Article 356 of the same Act are established by a person who keeps another’s property by embezzlement or by refusing to return the property, and the amount of the property is always considered in the judgment of sentencing. On the other hand, the crime of embezzlement is a constituent element of the crime, and the punishment for the crime is aggravated depending on the value of the embezzled property. Therefore, in order to ensure that appropriate balance between the crime and the punishment should be achieved, and that the principle of responsibility should not be undermined, the value of the embezzled property exceeds the minimum amount that serves as the basis for the application of the Act of the Specific Economic Crimes, as other constituent elements (see, e.g., Supreme Court Decision 2013Do2857, May 9, 2013).

2) Review of the reasoning of the lower judgment and the record reveals the following circumstances.

① After Defendant 1 assumed office as the representative director of the victim company, Defendant 1, and Defendant 3, from March 25, 2009 to September 25, 2013, paid an aggregate of KRW 2.7 billion to the executives of the victim company, with a deduction or refund of part of them in advance, and thereby raising funds of KRW 296 million in 2009, KRW 280,000,000, KRW 2880,000 in 20,000 in 2011, KRW 253,50,000 in 20,000 in 2012, KRW 55,00 in total, and KRW 116,50,00 in total, KRW 200 in the contract center belonging to the victim company’s GS division as above.

Defendant 3 requested Nonindicted 2, a working-level person in charge of the custody and management of the funds, to use the funds when it is necessary for the background investigation expenses and other expenses of the representative director, to Nonindicted 3, who is the chief secretary of the secretary general. Nonindicted 3 also discontinued the chief secretary of the secretary general and delivered the funds to Nonindicted 4, who is the chief secretary of the secretary general, to the same purport. Nonindicted 2 sent the funds of this case to the representative director’s secretary general and Nonindicted 4 in cash upon Defendant 3’s request. On an irregular basis, Nonindicted 2 sent the cash of this case to the secretary general and, upon Defendant 3’s request, sent the cash of this case to the secretary general.

② Meanwhile, at the time of Defendant 1’s former representative director’s employment, part of the benefits were received from all the executives in lump sum according to the rate set by class, and the funds were used in the office of the representative director for light survey expenses and other cash expenses. On January 2009, Nonindicted 5, who was the former chief secretary, was replaced by Defendant 1 to Defendant 1, and was transferred to Nonindicted 2 the remaining amount of KRW 150,000,000,000, which was used as expenses for light survey expenses. As such, the amount of the funds raised and used at the time of the former representative director’s employment was 20,000,000,000 won per year when the amount of the funds used by Defendant 3 was excluding the portion used by Defendant 3, and there was no difference between the funds raised and used during his employment period, and at the time, there was no problem that Defendant 1 was used for personal use regardless of the victim company and the representative director.

③ Defendant 1 consistently made a statement from the investigative agency to the court of the lower court, which used the instant funds as background investigation expenses, encouragement funds, secret room operating expenses, and other business-related connection expenses for the victim company. Defendant 3 also made a consistent statement with the Majority Opinion that used the instant funds as background investigation expenses for the victim company, and encouragement funds and support expenses related to business affairs.

④ As to this, the prosecutor submits a list of e-mail and congratulatory expenses exchanged among employees to the effect that Defendant 1’s ordinary friendship was paid. However, it is difficult to readily conclude that the entire amount of the ordinary expenses used by Defendant 1 solely with such materials was based on an individual friendship rather than on the need for the management of the company. On the other hand, there is no objective document suggesting that Defendant 1 and Defendant 3 used the instant ordinary expenses for entertainment expenses and other personal purposes, unlike the details of the change of the said Defendants.

⑤ Defendant 1, even by executing business promotion expenses, can raise congratulatory or encouragement funds by raising them. However, according to the basic policy, etc. on the management guidelines for business promotion expenses of the victim company, the ordinary research expenses should be operated within the scope of deductible expenses under the Corporate Tax Act, and the encouragement funds had considerable limitations on the amount and method of use, such as submission of relevant documents, etc. On the other hand, in reality, there is a need to separately prepare and use cash funds when only the execution standard amount or it is difficult to provide evidence.

On the other hand, around September 2012, Defendant 1 newly established a position of KRW 200,000 per annum for the representative director (116,400,000 per annum after the tax deduction), and thereafter, Defendant 1 transferred the position position to the account under the name of the chief secretary of the office in the name of the chief secretary of the office of secretary, and made it used as a congratulatory investigation expenses, and from April 4, 2012, Defendant 1 created funds by reducing the amount of the position position to be newly established as shown in the attached list of crimes in the judgment of the court below.

6) The lower court determined that Defendant 1 and Defendant 3 consumed the instant rain funds for personal use, not for performing the duties of the victim company, or that Defendant 1’s “reasonable portion of the congratulatory expenses” incurred by Defendant 1, not for the victim company’s occupational needs, but for the relationship between Defendant 1 and the individual. Accordingly, even based on the reasoning in its reasoning, the lower court did not completely exclude the probability that part of the instant rain funds would have been disbursed for the victim company.

Furthermore, the lower court acknowledged the possibility that Defendant 1 and Defendant 3 paid some ordinary expenses or encouragement money for the victim company, while all of them appears to have been disbursed in the business promotion expenses or position pay, etc., other than the instant irregular funds. However, even according to the reasoning of the lower judgment, there is no evidence suggesting that the said Defendants were paid business promotion expenses or position pay on the ground of the aforementioned determination, and even if examining the record, there is no evidence suggesting that the said Defendants paid the total amount of ordinary expenses or encouragement money for the victim company, not the instant irregular funds.

7) Defendant 3 performed overall control over the organization and personnel affairs of various field branch offices and labor-management affairs on behalf of Defendant 1 while working for a large number of employees of the victim company, and performed the role of sports-related agency. In light of Defendant 3’s domestic position and duties, it appears that it is necessary to pay light and field encouragement for employees, retired employees, etc. of the victim company. The witness of the first instance court, who was not dismissed by the lower court, was in charge of the president of the Korean mountainous conference of the victim company, and Nonindicted 6 and Nonindicted 7’s legal statement working for the home customer cooperation team of the victim company’s home.

3) Comprehensively taking account of the aforementioned various circumstances, Defendant 1, the highest manager of the victim company, which is a large company in a large scale, created the instant rain funds in order to cover cash expenses that are difficult to conduct ordinary accounting as necessary for the management of the company, and the possibility that the amount was used for such purposes cannot be ruled out. Therefore, it is difficult to view that the entire amount of the instant rain funds was used for the personal interests of Defendant 1 and Defendant 3, on the ground that there was no objective data on the specific source of use of the instant rain funds, etc., and there is room to regard that considerable portion of the funds was disbursed for the company as spent for the sake of the company’s operation and management needs. Defendant 1 prepared a system corresponding to the demand for cash expenditure by newly establishing a position position after he was appointed as the representative director, but in view of the size, etc. of the rain funds created and used at the time of his predecessor’s office, it is difficult to readily conclude that the instant rain funds was used solely for the personal purposes of the above Defendants.

On the other hand, since non-financial funds are not transparent in accounting, there exist cases where it can be inferred that the withdrawal or use of funds was made by means of voluntary consumption and embezzlement for personal purposes. However, this is permissible in cases where an actor does not explain the existence or use of funds, and where there is no evidence suggesting that the funds used were disbursed for the company objectively. In cases where the circumstances revealed that considerable portion of the funds used as in this case were to have been disbursed for the company, the prosecutor must prove that the prosecutor bears the burden of proof that there are sufficient circumstances to estimate voluntary use in relation to individual use. The above Defendants’ failure to clarify the detailed contents to verify the use of funds and present objective evidence, and to conclude that the whole funds raised were used as personal compactation or entertainment expenses regardless of the company’s management are contrary to the legal principles as to the burden of proof as to the constituent elements of a crime.

In addition, as long as it is difficult to separately specify the portion of the total amount of non-funds created as above, which is used for personal purpose and purpose, and used for other purposes, it cannot be deemed that Defendant 1 and Defendant 3 have proved the fact that the size of the amount of the property acquired by embezzlement of the instant non-funds with intent to acquire unlawful acquisition, is 1168.5 million won as stated in this part of the facts charged, or that at least 500 million won, which is the lowest limit of the amount of profit as stipulated in Article 3(1)2 of the Specific Economic Crimes Act, is 50

Nevertheless, the lower court found the above Defendants guilty by applying Article 3(1)2 of the Specific Economic Crimes Act to the extent that the amount of profit acquired by embezzlement is KRW 1.122,50,000,000 remaining excluding part of the amount remaining out of the instant funds. In so doing, the lower court erred by misapprehending the legal doctrine on the intent of unlawful acquisition in embezzlement, the amount of profit and burden of proof under the Specific Economic Crimes Act, thereby failing to exhaust all necessary deliberations, thereby adversely affecting the conclusion of the judgment. The allegation contained in the grounds of appeal by the

2. Judgment on the grounds of appeal by the prosecutor

In determining whether a company had an intent to commit an occupational breach of trust with respect to a management judgment, the same legal doctrine as the method of proving an intentional act is applied to the general occupational breach of trust. However, the management of a company is inherent in the original risk, and even if a manager has made a prudent decision with the belief that it would conform to the company’s interests based on the information collected within the extent possible based on the good faith and without intent to take personal benefits, the prediction may lead to the occurrence of an occupational breach of trust. In such a case, if criminal liability is recognized as an intentional act of occupational breach of trust, it would be in violation of the principle of no punishment without the law, and may result in a serious loss as well as the relevant company as well as the society. Therefore, even in light of the legal principle that the crime of breach of trust is at risk, even if the intent to commit an occupational breach of trust is considered, the intent of the crime of breach of trust shall be limited to the case where a third party has intentionally been aware of his/her own or the principal’s pecuniary interests and thus, he/she shall be held liable for 20.

For the reasons indicated in its holding, the first instance court rendered a judgment that it is difficult to deem that Defendant 1 and Defendant 2 engaged in a breach of duty or that the above Defendants engaged in a breach of trust in the course of acquiring the shares of the company as indicated in its holding, and acquitted Defendant 1 on the grounds that there was no proof of each crime regarding the violation of the Specific Economic Crimes Act (Misappropriation of trust) and the facts charged against Defendant 2 among the facts charged against Defendant 1. The lower court upheld

Examining the reasoning of the lower judgment in light of the record, the lower court’s determination is acceptable. In so doing, contrary to what is alleged in the grounds of appeal, the lower court did not err by exceeding the bounds of the principle of free evaluation of evidence against logical and empirical

3. Conclusion

Therefore, without examining the remaining grounds of appeal by Defendants 1 and 3, the part of the judgment below against Defendant 1 (including the part of acquittal in the grounds of appeal) and Defendant 3 are reversed, and this part of the case is remanded to the court below for further proceedings consistent with this Opinion. The prosecutor's appeal is all dismissed. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Park Poe-young (Presiding Justice)