[1] Standard for determining whether an insurance business constitutes an "insurance business" which is subject to a license under the Insurance Business Act

[2] Whether Article 4(1) of the former Insurance Business Act is violated in a case where a person who is not a financial institution authorized or permitted under relevant Acts and subordinate statutes, such as the Banking Act and the Specialized Credit Finance Business Act actually runs guarantee insurance business without permission from the Financial Services Commission (affirmative)

[3] In a case where Defendants (executive officers and employees of Gap and Eul corporation) were indicted for violating the former Insurance Business Act by running an insurance business without obtaining a certain amount of fees from debtors in return for issuing payment guarantee certificates, the case holding that Defendants’ act constitutes “guarantee insurance business” under Article 2 subparag. 1 and No. 3 of the same Act, and the case holding that the judgment below which found Defendants not guilty was erroneous in the misapprehension of legal principles on the grounds that Gap and Eul corporation engaged in guarantee insurance business without permission was in violation of Article 4(1) of the same Act

[1] The Insurance Business Act imposes criminal punishment on a person who runs an insurance business without a license on a person who satisfies physical and human requirements stipulated in the Act and engages in the insurance business by obtaining a license from the Financial Services Commission for each type of insurance business, taking into account the impact of the organization, sociality, etc. of the insurance business upon the State and the social and economic life. In light of the provisions and purport of the Act on the Regulation of Insurance Business, whether a person falls under an insurance business subject to a license should be determined by considering its substance or economic nature, regardless of

[2] In full view of Articles 8 and 27-2 of the Banking Act, Articles 2 subparag. 15, 3, and 46(1)5 of the Specialized Credit Finance Business Act, Article 16 subparag. 2 of the Enforcement Decree of the Specialized Credit Finance Business Act, and Articles 2 subparag. 1 and 3, 4(1), and 20 subparag. 1 of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter the same) and Article 2 subparag. 1 and 3 of the former Insurance Business Act, it is reasonable to view that any financial institution which has obtained authorization, permission, etc. under the relevant Acts and subordinate statutes, such as the Banking Act and the Specialized Credit Finance Business Act, actually engaged in guarantee insurance business in the form of payment guarantee business without permission from the Financial Services Commission. However, if a person who is not a financial institution authorized or permitted under the relevant Acts and subordinate statutes, actually runs guarantee insurance business

[3] In a case where Defendants (executive officers and employees of Gap and Eul corporation) were indicted on charges of violation of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter the same) on the ground that they engaged in an insurance business without permission from the Financial Services Commission by issuing a payment guarantee letter and receiving a certain amount of fees from debtors, the case holding that Defendants’ act constitutes an act of violating the former Insurance Business Act’s payment guarantee letter and payment guarantee letter and the former Insurance Business Act’s act constitutes “an act of receiving remuneration from the debtors and other medical officers in return for promising them to pay the damages to the creditors within the scope of the guaranteed amount in the event of nonperformance of obligations subject to payment guarantee, and it constitutes an act of issuing or receiving payment guarantee certificates and payment guarantee certificates without permission from the Financial Services Commission under Article 2 subparag. 1 and 3 of the former Insurance Business Act, and it constitutes “an act of issuing or receiving payment guarantee certificates and payment guarantee certificates from the debtor and other medical officers.”

[1] Article 2 subparags. 1 and 2, Article 4(1), and Article 20 subparag. 1 of the Insurance Business Act / [2] Article 2 subparag. 1 and 3 (see current Article 2 subparag. 1, 2, and 4), Article 4(1), and Article 20 subparag. 1 of the former Insurance Business Act (Amended by Act No. 10394, Jul. 23, 201); Articles 8 and 27-2 of the Banking Act; Article 2 subparag. 15, 3, and 46(1)5 of the Specialized Credit Finance Business Act; Article 16 subparag. 2 of the former Enforcement Decree of the Specialized Credit Finance Business Act / [3] Article 2 subparag. 1 and 3 of the former Insurance Business Act (Amended by Act No. 10394, Jul. 23, 2010; Article 2 subparag. 10 subparag. 4, 201; Article 5 subparag. 7 of the former Enforcement Decree of the Banking Act

[1] Supreme Court Decision 89Do2537 delivered on June 26, 1990 (Gong1990, 1633) Supreme Court Decision 2001Do205 delivered on December 24, 2001 (Gong2002Sang, 421)

Defendant 1 and one other

Prosecutor

Law Firm Mancheon-ro, Attorneys Jeon Soo-soo et al.

Seoul Central District Court Decision 2011No2531 Decided September 23, 2011

The judgment of the court below is reversed, and the case is remanded to the Seoul Central District Court Panel Division.

The grounds of appeal are examined.

1. In light of the provisions and purport of the Act on the Regulation of Insurance Business, the Insurance Business Act imposes criminal punishment on a person who runs an insurance business by obtaining a license from the Financial Services Commission by satisfying physical and human requirements prescribed in the Act and obtaining a license from the Financial Services Commission for each type of insurance business. In light of the provisions and purport of the Act on the Regulation of Insurance Business, whether an insurance business falls under the category of an insurance business that is subject to a license shall be determined by considering the substance and economic nature of the insurance business in a substantial manner without referring to its name or legal composition (see Supreme Court Decisions 89Do2537, Jun. 26, 1990; 2001Do205, Dec. 24, 2001).

2. The summary of the facts charged in this case is as follows: “Defendant 1, as the chief of Nonindicted Co. 1 (hereinafter “Nonindicted Co. 1”), conspired with Nonindicted Co. 2, the actual representative, and Nonindicted Co. 1 did not obtain a guarantee insurance contract from Sept. 16, 2009 to Mar. 3, 2010, concluded a guarantee insurance contract of KRW 208,61,484,65 in total over 226 times, such as in the list of crimes in the first instance judgment (1), and received a fee equivalent to 3% of the amount of debt, and run the guarantee insurance business without obtaining a license from the Financial Services Commission; Defendant 2, as a director of Nonindicted Co. 3 (hereinafter “Nonindicted Co. 3”) without obtaining a guarantee insurance contract of KRW 30,00,000,000,000 from Mar. 30, 200 to Jun. 2, 209; Defendant 208,008).

The court below affirmed the judgment of the first instance court which acquitted the Defendants on the ground that, in light of the following circumstances: (a) an insurance company’s guarantee insurance and a financial institution’s guarantee for payment guarantee for an insurance company and a financial institution’s guarantee for payment are different in that it receives a certain amount of money from the debtor under a contract with the debtor and guarantees the debtor’s obligation for a certain period of time; (b) the insurance company’s guarantee insurance and the financial institution’s guarantee for payment are different only in terms of the form and content of the contract, the method of determining guarantee fees or premiums, and the awareness of the contractor; (c) both Nonindicted Company 1 and Nonindicted Company 3 expressed the payment guarantee business in the context of the purpose of the certified transcript of corporate register; (d) they are not entirely used in the name of the insurance; (e) financial institution including Nonindicted Company 1 and Nonindicted Company 3’s each payment guarantee certificate issued by the Bank under the Banking Act; and (e) they carry out the payment guarantee business as an incidental business; and (e) the Defendants issued the payment guarantee certificate.

3. However, in light of the above legal principles and records, the above determination by the court below is not acceptable for the following reasons.

Article 4(1) of the former Insurance Business Act (amended by Act No. 10394, Jul. 23, 2010; hereinafter the same shall apply) applicable to the facts charged in the instant case provides that a person who intends to run an insurance business shall obtain permission from the Financial Services Commission for each type of insurance, including guarantee insurance corresponding to one item of non-life insurance. Article 200 Subparag. 1 through Article 4(1) of the former Insurance Business Act provides that a person who violates Article 200 of the former Insurance Business Act shall be punished. In addition, according to Article 2 of the former Insurance Business Act, the term “insurance business” refers to a business of receiving money from a life insurance business, a non-life insurance business, and a Type 3 insurance business (title. 1); and the term “non-life insurance business” refers to a business of receiving money from a debtor and any other person liable to compensate for losses arising from an accident in return for promising compensation for losses arising from the performance of obligations under a contract or obligations under a contract (including offering remuneration from a debtor and any other person liable.

As such, a guarantee insurance under the former Insurance Business Act is in the form of a non-life insurance for which the insurer accepts the compensation of the loss that the insured (creditors under the main contract) will incur due to the nonperformance by a policyholder who has a legal relationship with the insured, but is practically aimed at the same effect as the guarantee contract with the nature of the guarantee (see, e.g., Supreme Court Decisions 2004Da58277, Aug. 25, 2005; 201Da62144, Feb. 23, 2012). Meanwhile, a guarantee guarantee granted by a financial institution, such as a bank, etc. in the form of a credit transaction, by a financial institution as a guarantee for a debt owed by the customer to a third party according to the entrustment by the customer, which is based on the guarantee consignment agreement concluded between the financial institution and the customer, constitutes a guarantee contract again with the creditor (see, e.g., Supreme Court Decision 201Da62374, Oct. 11, 2002).

As such, a guarantee insurance contract is concluded between an insurer and a policyholder who is an obligor under a principal contract, and a guarantee contract is concluded again with a financial institution based on a guarantee agreement concluded between a financial institution and an obligor who is a guarantor, and thus, the financial institution enters into a guarantee contract with a creditor. However, there is no particular difference between a guarantee insurance contract and a guarantee contract even in the actual process of concluding a contract, considering the fact that a financial institution enters into a guarantee agreement with a financial institution after concluding a guarantee agreement with an obligor and then deliver to an obligor who is the guarantor to the obligee by expressing its intent to guarantee the payment guarantee. Ultimately, if both a guarantee insurance and a guarantee payment are not performed by an obligor, it is similar to an insurance company or financial institution to perform its obligation, and to perform the same purpose and function in that it receives premiums or fees from the obligor in return

Meanwhile, according to the Banking Act, a bank may operate a payment guarantee business, among businesses incidental to banking business, without reporting to the Financial Services Commission (Article 27-2), but a person who intends to operate banking business shall obtain authorization from the Financial Services Commission (Article 8). According to the Specialized Credit Financial Business Act, a specialized credit financial business company may operate a payment guarantee business (Article 46(1)5, Article 16 subparag. 2 of the Enforcement Decree), but a specialized credit financial business company shall obtain permission from the Financial Services Commission or register with the Financial Services Commission (Article 2 subparag. 1

In full view of the above provisions and the above provisions of the Insurance Business Act, it is reasonable to view that a financial institution which has obtained authorization or permission pursuant to the relevant Acts and subordinate statutes, such as the Banking Act and the Specialized Credit Finance Business Act, actually engaged in guarantee insurance business in the form of payment guarantee business, and that if a person who is not a financial institution which has obtained authorization or permission pursuant to the relevant Acts and subordinate statutes actually runs guarantee insurance business without permission from the

In light of the above legal principles, the Defendants’ act of issuing a payment guarantee letter as stated in the facts charged and receiving a certain amount of fees from the obligor is not different on the ground that the Defendants’ act of receiving a payment guarantee letter from the obligee within the scope of the guaranteed amount in return for promising the obligee to pay for the damage to the obligee within the scope of the guaranteed amount and receiving the payment in return for the consideration for the “guarantee insurance business” under Article 2 subparag. 1 and 3 of the former Insurance Business Act. It constitutes an act of promising the obligor and the obligor to compensate for the damage to the obligee and other right holders arising from the performance of obligations arising from sale, employment, contract, or other contract or the performance of obligations under the statutes, and the Defendants’ act of receiving the remuneration from the obligor and the obligor.

In addition, Nonindicted Co. 1 and Nonindicted Co. 3, who performed their duties with the Defendants’ affiliation, are merely a loan business that has completed registration under the Act on Registration of Credit Business, etc. and Protection of Finance Users, and are not financial institutions authorized or permitted by the Financial Services Commission pursuant to the relevant Acts and subordinate statutes, and thus, engaging in guarantee insurance business through the issuance of payment guarantee certificates and the receipt of consideration therefor as stated in the facts charged without permission of the Financial Services Commission, should be deemed to violate

Nevertheless, the lower court upheld the first instance judgment that acquitted the Defendants on the sole ground that the Defendants’ issuing of the instant payment guarantee letter and the giving and receiving of consideration are similar to the financial institution’s payment guarantee and did not use the name of insurance. In so doing, the lower court erred by misapprehending the legal doctrine on Article 4(1) of the former Insurance Business Act, thereby adversely affecting the conclusion of the judgment. The allegation contained in

4. Therefore, the lower judgment is reversed, and the case is remanded to the lower court for further proceedings consistent with this Opinion. It is so decided as per Disposition by the assent of all participating Justices on the bench.

Justices Yang Chang-soo (Presiding Justice)