If government subsidies are used for other purposes, penalties may be imposed.

Businessman Mr. A operates Company X, which was selected as a K-Startup business, a program supported by the government. The project was funded with KRW 200 million in government subsidies and KRW 100 million in private investments, totaling KRW 300 million.

Mr. A inflated personnel expenses by listing persons 1, 2, and 3 as employees, even though they were not actual employees when submitting the business plan and other documents.

 

After receiving the government subsidies, Mr. A paid salaries to persons 1, 2, and 3 and had them immediately deposit the money back into Company X's account to be used for business expenses. Mr. A never used the money for personal purposes; it was all used for the company's business operations.

 

Employee B of Company X did not have a good relationship with Mr. A. After being scolded by Mr. A for poor job performance, B became upset, resigned from Company X, and reported Mr. A's illegal activities to the Anti-Corruption and Civil Rights Commission.

 

In this case, will Mr. A be punished? Yes, Mr. A will be penalized for violating the Act on the Management of Subsidies and for embezzlement in the course of duty.

 

SUBSIDY MANAGEMENT ACT Article 41 (Penalty Provisions) Any of the following persons shall be punished by imprisonment with labor for not more than five years or by a fine not exceeding 50 million won. 1. A person who uses subsidies or indirect subsidies for any other unspecified purpose, in violation of Article 22; 2. A person who violates any of Article 26-6 (1) 2 through 4; 3. A person who commits a prohibited act with respect to any important property without obtaining approval of the head of the central government, in violation of Article 35 (3).   Article 22 (Prohibition against Use for Unspecified Purposes) (1) Any subsidy program operator shall conscientiously implement his or her subsidy program with the due care of a good manager, in accordance with statutes or regulations, details of the decision to grant subsidies, or dispositions the head of a central government agency has taken pursuant to statutes or regulations, and shall not use the subsidies for any other unspecified purpose. (2) Any indirect subsidy program operator shall implement his or her indirect subsidy program with the due care of a good manager, in accordance with statutes or regulations and the purposes of granting indirect subsidies, and shall not use the indirect subsidies for any other unspecified purpose. (3) Notwithstanding paragraphs (1) and (2), the excess amount of subsidies unreturned under Article 31 (4) may be used for other programs with similar purposes.

 The subsidies provided for employee personnel expenses are strictly designated for that purpose. Therefore, even if the funds are used for the corporation, they cannot be used for any other purpose besides personnel expenses.

Using funds designated for specific purposes for other purposes can result in punishment for embezzlement in the course of duty. However, if the designated purpose is not strictly defined and expenditures can be allowed through a certain process, one may not be punished for embezzlement.

 

Mr. A believed that their actions would not be considered a crime since they did not personally gain any benefit, but the law disagrees.

 

Mr. A was found guilty in court. However, the fact that they did not use the funds for personal purposes was taken into consideration, which led to a reduced sentence.

 

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