South Korea Abolishes Reward Cap for Illegal Subcontracting Tips, Boosts Penalties

South Korea is set to significantly enhance its crackdown on illegal subcontracting in the construction industry by removing the cap on rewards for whistleblowers and strengthening penalties for offenders. The Ministry of Land, Infrastructure and Transport announced that a revised Construction Industry Basic Act enforcement decree, approved at a cabinet meeting, will abolish the previous 2 million won limit for 신고포상금 (reward money for reporting).

Under the new regulations, whistleblowers can receive up to 30% of the penalty imposed on a company. For instance, a company fined 189 million won for unfair practices, which would have previously yielded a 2 million won reward, could now result in a payout of up to 56.7 million won. The government has also eased reporting requirements, allowing individuals to receive rewards based on detailed statements and circumstances, even if they only provide initial information that leads to the confirmation of illegal activities during subsequent investigations.

These changes aim to incentivize more industry insiders to come forward with information, as illegal subcontracting, often conducted through verbal agreements or side contracts, is difficult to detect solely through on-site inspections. The ministry plans to apply the revised reward standards to 신고 (reports) filed before the amendment's enforcement, provided administrative penalties are confirmed.

In parallel, penalties for companies involved in illegal subcontracting are being toughened. The standard period for business suspension will be extended from 4-8 months to 8-12 months. The penalty surcharge rate for subcontracted work will also be significantly increased, with the minimum rate raised to 24% from the previous 4-30% range. Furthermore, the period during which construction companies engaging in illegal subcontracting are banned from participating in public projects will be extended from 1-8 months to 8-24 months.