"Signing Private Contracts with Companies Owned or Represented by Local Councilors?"

Results of Conflict of Interest Inspection in Local Councils Announced

- ACRC announced the results of its investigation into the operational status of the conflict of interest prevention systems in 20 local councils

- A total of 2,318 allegations of violations of the Conflict of Interest Prevention Act, including inappropriate private contracts and poor management of local councilors' activities in the private sector, were identified

(27, November. 2024, ACRC)

According to the Conflict of Interest Prevention Act for Public Officials, public institutions are prohibited from signing private contracts with local council members, their families, and companies they own. However, it was revealed that such contracts were still being made, indicating poor management of the operation of the conflict of interest prevention system by local councils.

The Anti-Corruption and Civil Rights Commission (ACRC, Chairperson Ryu Chul Whan) conducted an inspection of the operation of the conflict of interest prevention systems in 20 local councils from July 2022, when the 8th local council was launched, to August of this year, and announced the results.

* (Upper-level) Daejeon Metropolitan City Council, Jeju Special Self-Governing Council, Chungcheongbuk-do Council, Chungcheongnam-do Council, Jeonbuk Special Self-Governing Council, Gyeongsangbuk-do Council, Gyeongsangnam-do Council (7 in total)

* (Lower-level) Guro-gu Council, Songpa-gu Council, Daegu Jung-gu Council, Ulsan Nam-gu Council, Gwacheon City Council, Uiwang City Council, Yanggu County Council, Inje County Council, Chungju City Council, Buyeo County Council, Iksan City Council, Yeongju City Council, Changwon City Council (13 in total)

The result of the ACRC’s inspection has revealed that 20 local councils had inappropriately signed private contracts worth about 3.1 billion won with companies owned or represented by local council members or their families over the past two years, and 308 out of 518 local council members had not submitted details of their activities in the private sector or submitted poorly before the commencement of their office term.

(Signing improper private contracts) along with local councils, local governments or public institutions that are audited or investigated by local councils are prohibited from entering into private contracts with local council members, their families, and companies they own or represent.

Nevertheless, as a result of the ACRC’s inspection, it has been confirmed that a total of 1,391 private contracts worth about 3.1 billion won had been signed.

This included a total of 259 cases, worth about 1.78 billion won, where private contracts were signed with a specially-related business* in which local councilors or their families have more than a certain stake. There was also a typical case where a local councilor changed a representative of a company from him/herself to another person at the start of his/her office term, but still held his/her stocks in the company without disposing and signed a private contract.

* A business of which a local councilor, his/her spouse, and his lineal ascendants or descendants individually or aggregately own more than 30% of shares or more than 50% of capital

In addition, the number of cases where standing committees to which local councilors belong had held meetings in the name of parliamentary activities and paid expenses on meals provided by companies operated by the local councilors amounted to 176 cases the total value of which was approximately 58 million won.

(Poor submission & management of private sector activities carried out by local councilors) Under Article 8 (1) of the Conflict of Interest Prevention Act, local councilors have a duty to submit s stating their private sector activities they had performed within three years prior to the start of their term in office.

However, it has been found that 23 local councilors among those subject to the ACRC’s inspection did not submit despite their private sector experiences. In addition, 285 local councilors submitted a statement of private sector business activities, but excluded for-profit businesses that they operated.

Of the 518 local councilors inspected, 308, or 59.5%, did not submit a statement of private activities or submitted poorly.

There were also cases in which local governments signed private contracts with a company where local councilors are representatives holding a certain amount of stake as they did not submit details of their private sector business activities.

(Private use of public goods such as official vehicles) The Conflict of Interest Prevention Act prohibits private use of, or gaining profits from, goods owned or leased by public institutions, such as official vehicles and residences.

However, the ACRC have identified that 11 of the 20 local councils where the inspection was conducted had used official cars for private purposes or poorly managed.

Major cases of suspected private use included the use of official cars more than 200 kilometers a day to attend weddings and funerals, and the use of official cars to the airport during weekends or holidays, but failed to prove that they were intended for performing public duties.

In addition, if a private stakeholder, such as a local councilor him/herself or his/her family, gains a benefit or disadvantage as a consequence of his/her review of a bill, he/she must report it and avoid the review of the bill, but the local councilor violated this and reviewed the bill related to the organization he/she had served in the past.

On top of this, it has been revealed that local councils operated the conflict of interest prevention system without fully understanding the main contents of the law, such as not checking whether there was a recruitment of family members of local councilors even when hiring chief secretaries and secretarial agents privately.

The ACRC will notify relevant local councils of such suspected violations of the Conflict of Interest Act as the conclusion of private contracts, non-reporting and non-recusal of privately-interested parties, and will also conduct follow-up measures including taking disciplinary actions and imposing fines following further investigation and identification.

Furthermore, the Commission will lead local councils to fully understand the Conflict of Interest Act and strengthen the management of specially-related businesses with which they are associated through supplementing and distributing the Conflict of Interest Prevention Guideline for Local Councils to all local councils in the first half of the year 2025, thereby preventing potential violations.

Chung Seung Yun, Vice Chairperson of the ACRC, said, "This inspection is of great significance as it is the first time since the enforcement of the Conflict of Interest Act to inspect the operational status of the conflict of interest prevention system by local councils and identify major problems," adding that "The ACRC will do its best to strengthen education and public promotion to prevent the recurrence of violations of the Conflict of Interest Prevention Act in local councils, thereby increasing the level of integrity of local councils."