The ongoing diversification and sophistication of domestic crime organisations pose a reputational and legal risk to foreign operators and investors in South Korea.
Outlook and implications
Reputational risks; Legal risks including contract frustration
Sectors or assets
All, mainly domestic firms operating in the entertainment industry
Evolution of criminal groups
Organised crime groups have expanded across South Korea because of less stringent policing following the end of military dictatorship in 1987. In 1990, the government announced a "war on organised crime" and sharpened the laws and penalties pertaining to organised criminal activities.
The most recent publicly available study conducted by the Supreme Prosecutors' Office (SPO), published in 2006, estimated that 47,251 active members of 383 groups were operating throughout South Korea. The highest concentration of organised crime groups is in the capital Seoul and the surrounding Gyeonggi Province, followed by the southeastern Gyeongsang region and the harbour city of Busan. According to the latest data available in the 2016 White Paper issued by the Korean National Police Agency (KNPA), 3,160 people from 44 different criminal groups were arrested in 2015 (of whom 591 were incarcerated). The document recorded that 1,106 suspects were members of newly established criminal groups.
The traditional structures of organised crime groups are gradually changing through a process that the KNPA in its 2016 White Paper labelled "downsizing and sophistication". Due to the heavy penalties imposed on the formation of, or participation in, criminal organisations, these groups increasingly tend to be smaller than the large nationwide syndicates of the past. Since the early 2000s, the average size of groups has reduced from up to 90 members to as few as five or six members, making it easier to evade detection by law enforcement agencies. In addition, the simultaneous incarceration of many crime bosses after 1990 functioned as a catalyst for the development of more systematic co-operation between the groups in loose-knit, co-operative fraternities. Periodic meetings between the bosses take place once or twice a month and serve to mediate intergroup altercations.
The groups' smaller size and co-operation indicate that violence will probably further decline in the three-year outlook, particularly as groups diversify their operations away from their traditional sources of income including drug-smuggling, extortion, and involvement in the sex trade. The last of a large-scale interorganisational confrontation was in November 2009, when club-wielding members of the Chilseongpa and the Beomseobangpa fought in the Gangnam district of Seoul: it is illegal for people to carry blades or guns in South Korea, meaning most violence between individuals involves hand-to-hand combat or improvised weapons such as metal bars.
Diversification and sophistication of activities
Jean Chung/Getty Images
Data on the reasons for the arrests of organised crime group members included in the 2016 KNPA White Paper suggest that extortion remains important means for South Korean organised crime groups to generate revenue. The groups mainly target local businesses, especially small and medium-sized enterprises (SMEs), not in a specific sector, but rather in specific neighbourhoods that the gangs claim as their "territory". Rather than threatening individuals with violence, the groups usually threaten property damage, mainly in the form of vandalism.
However, these "first-generation" activities are gradually changing because the police are increasingly able to monitor such overt activity. This process is aided by advances in surveillance technology: South Korean cities have high levels of CCTV coverage, and credit cards and mobile-phone records are easily traceable by the authorities. In response, organised crime groups are diversifying their activities into construction and real estate businesses, the gambling industry, or loan and stock markets. Criminal groups that are involved in real estate development and gambling are typically labelled "second-generation" or "mixed type" organised crime groups by the police in media statements. "Third-generation" groups refrain from overt violence and instead resort to blackmail and strategic corruption (namely investing in relationships with legitimate businesses, the police, and politicians, aiming to improve the groups' prospects and operating environment in the long term) to pursue their ends, making it increasingly difficult to distinguish between the businesses of criminal organisations and legitimate business entities. For example, there have been multiple allegations since the 1990s of criminal groups' interference in South Korea's music industry, and in January 2011, gangsters were arrested in connection with a distributed denial-of-service (DDoS) attack on 109 gambling websites.
Similarly, official statements and academic research suggest that second- and third-generation crime groups have expanded into China, including in Macau, and into Southeast Asia, particularly the Philippines and Vietnam, where they operate gambling businesses and engage in extortion of members of the South Korean community.
Outlook and implications
Two main trends in organised crime in South Korea will probably continue in the coming years: internationalisation and corporatisation. The resulting versatile and hybrid nature of third-generation organised crime groups that conflate legitimate business and illegal activities makes it difficult not only for South Korean authorities to effectively fight these groups, but also for foreign investors and operators to identify them to prevent against potential reputational or legal risks.
Although violent incidents perpetrated by first-generation crime groups still occur, they are decreasing as a percentage of total arrests related to organised crime activity.
The challenges facing South Korea's authorities are aggravated by the fact that many South Korean crime groups continue to relocate overseas beyond the direct reach of South Korean agencies.
Similarly, the lack of data on transnationally operating groups in South Korea also suggests that an effective response will probably require efforts to strengthen international co-operation against organised crime in the Asia-Pacific region.