Criminal Punishment for Window-dressing

The Presidential Transition Committee (PTC) decided to introduce a certification system in which Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have to sign on the financial statements and public announcements of their firm to enhance transparent management.

Once this system is introduced, CEO and CFO not only pay the damages but also become the object of criminal punishment in case the window dressing in accounting or false public announcement is caught.

The Committee member Heo Sungkwan of the first economy depart said, “In advanced countries, CEO sign on the clause `In case the public announcements are not truth, I am willing to be punished criminally` with the confirmation of public announcements. We have to make a basis for the criminal punishment by putting this clause in.” Related to this, he also added, “It is necessary to ensure transparency in trade, accounting and public announcements. Especially the system related to the transparency in accounting should be much more intensified.”

According to the Committee`s plan, CEO will sign on the certification including not only the clause `The public announcements went through proper internal procedure and have no false or omitted fact” but also the clause “If the public announcements are proved to be false, I will bear the responsibility for that.”

While preparing measures for improvement of auditing system, the Financial Supervisory Commission (FSC) made both CEO and CFO sign on the business report and supervisor report last November but it did not include the clause about criminal punishment. The FSC is now preparing for amendment of related laws such as securities transaction laws within this year but the business world is opposing seriously. The U.S.A has recently introduced this certification system to root out window dressing in accounting which becomes a hot issue due to the Enron scandal.

On the other hand, the business world is opposing for this, saying, “Since `laws concerning actual directors` is introduced in the commercial law to call the actual director to account, this certification system is a kind of double restriction.”

Do-Young Kim nirvana1@donga.com