Korea revamps business laws to favor fines over prison

South Korea will eliminate prison sentences for most nonmalicious corporate violations and sharply raise fines for serious business misconduct under a wide-ranging legal reform announced Tuesday by the government and the ruling Democratic Party.

The revision affects 331 economic statutes across areas such as fair trade, subcontracting, franchise operations and digital compliance. It replaces the long-standing "punishment-first" enforcement model with one that prioritizes corrective orders and financial sanctions.

Under the changes, maximum fines will increase significantly. In the Fair Trade Act, the cap on fixed fines for abuse of market dominance will rise from 2 billion to 10 billion won (approximately $7 million), while revenue-based fines for the same offense will increase from 6 to 20 percent of related sales, according to the Ministry of Economy and Finance.

Similar hikes apply across key areas such as subcontracting, franchising and retail distribution, where maximum fines will rise to 5 billion won, up from previous limits ranging between 500 million and 2 billion won.

Regulators emphasized that financial penalties, paired with corrective orders, enable faster enforcement compared to the multiyear timelines of criminal trials.

At the same time, the government will decriminalize a broad set of low-risk administrative offenses, particularly those stemming from procedural errors or filing delays. These include failures to update workforce information, retain certain records, or meet disclosure deadlines, now to be handled through administrative fines rather than criminal charges.

The overhaul also tightens rules in the digital sector, removing prison sentences for failures to fully safeguard location data while raising the maximum fine fivefold, from 400 million to 2 billion won.

Deputy Prime Minister and Finance Minister Koo Yoon-cheol said the reform "breaks from a punishment-first enforcement tradition" and introduces a structure that “more effectively deters major violations while easing unnecessary criminal risk for routine errors.”

Leading business groups voiced clear support. The Korea Chamber of Commerce and Industry said the revisions included “many of the issues the business community has long raised,” calling for implementation to proceed “boldly and with urgency.” The Korea International Trade Association welcomed the easing of criminal liability, saying it would help “reduce legal uncertainty” and support “accountable corporate management.”

The Korea Enterprises Federation called the overhaul a “meaningful correction” to excessive legal exposure and urged the government to ensure companies can “experience the effects on the ground.” The Federation of Korean Industries noted that higher fines would “strengthen enforcement,” while easing penalties for minor administrative breaches would “alleviate compliance burdens.”

Tuesday’s announcement follows an earlier phase of reform in September, which revised 110 statutes. With this second round, 441 provisions have now been overhauled. A third round is scheduled for early 2026, as part of a multiyear deregulatory agenda aimed at improving legal predictability, reducing executive legal exposure, and narrowing what officials have called the “Korea Discount” in global investment assessments.

One notable omission is the breach of trust offense, a criminal provision frequently flagged by corporate executives and investors as overly broad and prone to abuse. While it was not addressed in this round, officials confirmed that alternative legislation is being drafted by the Ministry of Justice and will be announced separately.