LH scandal and conflict of interest in public sector

 The latest impropriety to roil the Moon jae-in government pertains to irregularities by Korea Land & Housing Corp. (LH) employees regarding large urban development projects near Seoul.

State-owned LH was established in 2009 as a comprehensive organization responsible for the development, construction, renovation and management of land, housing properties and cities in South Korea. Since then, it has developed residential areas, new towns and industrial complexes, including the inter-Korean Kaesong industrial park in North Korea.

Earlier this month, two civic groups – People’s Solidarity for Participatory Democracy and Lawyers for a Democratic Society -- alleged that LH employees bought land worth about 10 billion won ($8.88 million) in the cities of Gwangmyeong and Siheung in Gyeonggi Province between April 2018 and June 2020, before plans for transformative development projects -- aiming to decentralize Seoul by turning farmland into a self-sufficient town powered by an industrial complex and full infrastructure -- were announced. 

Their role in using insider information to snatch precious property before word got out brought into sharp focus the conflict of interest in public sector and effective measures to tackle the issue. 

A conflict of interest here involves the public duty and private interest of public officials, in which their private-capacity interest could improperly influence the performance of their official duties and responsibilities.

Since then, the police have raided LH headquarters and other regional offices, but the ensuing commotion has refused to subside. With public mistrust growing before crucial mayoral by-elections in Seoul and Busan on April 7, undermining his continuing attempts to cool the property market, President Moon was forced to issue a public statement. 

He encouraged the ruling party to pass a conflict of interest law, noting that “the people are infuriated” and the “unacceptable act destroyed society’s fairness and trust.” 

Moon said that although the current anti-graft law, also known as the Kim Young-ran law, paved the way for the country to clean up corruption, and the latest scandal “should serve as an opportunity to create a strong conflict of interest prevention system.”

It took an unforeseen public embarrassment just before crucial elections to come to this sudden realization. Efforts to bring a stringent law to tackle conflict of interest in the public sector have been put on the backburner for years now, mostly due to reluctant lawmakers across the ideological spectrum.

In fact, there is already a public service ethics law which seeks to establish the ethics of officials by preventing conflict of interests through the prevention from acquiring unlawful property and securing fairness in the execution of their official duties. It prescribes matters necessary for the regulation of property acquisition by public officials who take advantage of their office, a report on gifts and blind trust of the stocks by officials, and restrictions, etc. on the employment and acts of retired officials.

Article 2-2 of the law states that the central and local governments shall strive to promote the smooth progress in the performance of duties of public officials in relation with their property interests, so as not to cause any difficult situation in their fair performance of duties.

“Public officials shall appropriately and faithfully perform their duties with a preference of public interests, so as not to cause any difficult situation in the fair performance of their duties in relation with their property interests,” it notes.

It further adds that no public official shall pursue private interests or grant illegal preferential benefits to any individual, institution or organization using his or her public position, and unfairly use the information acquired during his or her incumbency for private purposes or have another person use such information unlawfully.

 However, the law has not been very effective in tackling conflict of interest and it is widely accepted that there is need to further strengthen it.

It was in this context that a clause to prevent conflict of interest among public officials in the current anti-graft law was shelved when it was initially taken up for discussion in the National Assembly five years ago. Subsequent efforts to introduce it have since been ignored.

Therefore, it is unclear whether a related law will be expedited, although Moon is right in noting that it is indeed an opportunity to do so. While one can expect strict action to be taken against the public officials involved in the LH scam, there is a possibility that the issue will die down after elections.

The government has so far identified 20 public officials suspected of buying land for speculation in the Gwangmyeong-Siheung area, and Prime Minister Chung Sye-kyun has pledged to declare a “war” against real estate crimes.

A government task force has confirmed 13 of the LH officials identified by the civic groups and found seven more after looking into 14,000 employees of LH and the Ministry of Land, Infrastructure and Transport.

The detailed findings will be transferred to a special police investigative team, which will expand the probe to include spouses and relatives of the officials in question.

The latest scandal comes in the backdrop of soaring property prices in since May 2017 when Moon came into office, despite repeated government interventions to cool down the market. Housing affordability has become a headache, as his high levels of support have started slipping due to scandals, high unemployment and slow economic growth.

Historically, real estate has been the safest and most lucrative investment vehicle in Korea. Believing that the rise in housing prices is triggered more by speculation than real demand, the government has on various occasions stepped in to curb the price rise and crack down on speculation.

Market watchers expect the property market to continue to attract public attention and policy focus in 2021 as house prices will maintain their upward trend.

As noted by analysts, two factors will drive the anticipated growth in housing prices. On the supply side, the housing stock will sustain the persistent increase in prices for new properties and also add upward price pressure in the second-hand property market. On the demand side, property remains a favorite investment asset and will continue to be so.

If the government is really keen to curb housing prices and gain back public confidence, it must ensure that its real estate policies are in tune with reality and not just stopgap measures. More importantly in the context of the current scandal, it must beef up its checks and balances on conflict of interest in the public sector.

Conflicts of interest in the public sector are particularly important, because if they are not recognized and controlled appropriately they can undermine the fundamental integrity of the government.