Hello, I am Heejun Lee, attorney at Yeoam Law Firm in Seoul.
When I advise people who run cross-border purchasing-agent (“buying agent”) businesses or small import operations in Korea, many cases start as “a little customs duty underpaid” and then grow much larger.
“Customs is calling it smuggling, but most of my goods have a 0% duty rate, so almost no duty was lost.”
“I have hundreds of orders. I was told that if they add everything up, the aggravated-penalty law applies.”
“Customers prepaid duties and VAT, but I did not actually pay them. Is that a separate problem?”
These cases rarely stop at the Customs Act. The same transactions can raise Customs Act offenses (duty evasion, smuggling, false declaration), import VAT and tax issues at the domestic sales stage, and sometimes fraud or embezzlement under the Criminal Act. Depending on which offense applies and how the amounts are calculated, a case that could end with a fine can turn into a prison sentence and forfeiture of hundreds of millions of won.
Because I keep receiving inquiries with this structure, here is an overview, based on actual Korean court decisions, of the key issues and where outcomes diverge. Court decisions are cited by year only.
1. One transaction, several possible offenses
When undervaluation is detected, four tracks usually need to be reviewed at the same time.
① Customs Act. If an import declaration was filed with a lowered price, customs duty evasion (Article 270) applies; if goods entered without a declaration, for example through list clearance, smuggling (Article 269) applies; if items unrelated to the duty amount were falsely stated, false declaration (Article 276) applies. Large amounts trigger aggravated penalties under Article 6 of the Act on the Aggravated Punishment of Specific Crimes (“Aggravated Punishment Act”).
② Taxes at import. Imported goods are subject to VAT in addition to customs duty. Separately from the criminal case, Customs assesses the shortfall in duty and VAT plus penalty taxes. Even for goods with a 0% duty rate, the VAT part remains.
③ Punishment of Tax Offenses Act at the domestic sales stage. If domestic sales were not reported, or were hidden through borrowed-name accounts or double books, VAT and income tax evasion become an issue (Article 3 of the Punishment of Tax Offenses Act). Large annual amounts are aggravated under Article 8 of the Aggravated Punishment Act.
④ Criminal Act. If money was collected from customers “for duties and VAT” and never paid, fraud or embezzlement may be examined.
Each track has a different authority that files the criminal complaint, a different way of calculating amounts and a different threshold for aggravation. The starting point is therefore to sort the transactions by clearance method and by type of tax from day one.
2. Why is undervalued list clearance treated as “smuggling”?
List clearance is a simplified procedure that waives the import declaration for small items for personal use (generally up to USD 150, or USD 200 for goods shipped from the United States). Goods that do not meet these conditions but enter through list clearance are treated not as “declared at a lower price” but as “imported without a declaration”.
In a 2008 decision, the Supreme Court of Korea held that using invoices below the actual purchase price to make goods look eligible for simplified clearance, and then clearing them through list clearance, constitutes smuggling. That is why the same undervaluation leads to different offenses depending on whether a regular import declaration or list clearance was used.
The argument “no duty was evaded because the duty rate is 0%” does not work on its own either. In a 2002 decision, the Supreme Court held that importing without a proper declaration is an offense even for goods on which no duty is imposed, because the smuggling offense protects the clearance procedure itself, not only tax revenue.
When is a purchasing agent the “importer” for smuggling purposes? In a 2025 decision, the Supreme Court held that the “person who imported” is not determined by whose name appears as consignee but by who was involved in clearance and effectively decided whether to smuggle. A customer who was not involved in clearance is not the offender. Conversely, an agent who personally set the declared prices and chose the clearance method is likely to be treated as the importer.
3. Are hundreds of orders added up for aggravated punishment?
For smuggling, Article 6 of the Aggravated Punishment Act imposes imprisonment of at least 3 years where the cost of the goods is KRW 200 million or more, and life imprisonment or at least 5 years where it is KRW 500 million or more, with a mandatory fine of twice the cost of the goods. For duty evasion, aggravation starts at evaded duty of KRW 50 million. Whether hundreds of transactions are combined into one offense or judged one by one therefore decides how serious the case is.
In a 2000 decision, the Supreme Court treated an attempt to smuggle a large quantity of goods on the same occasion with a single intent as one comprehensive offense and added up the cost of goods. By contrast, an appellate panel of the Incheon District Court held in 2025 that a separate offense is committed with each act of importing without a declaration. The test is how the actual import acts are divided, not the number of orders or product types.
There is also a 2024 lower-court decision applying the ordinary Customs Act, not the Aggravated Punishment Act, to a purchasing-agent case involving thousands of imports with a combined cost of over KRW 1 billion. A large total amount does not automatically trigger aggravated punishment.
The calculation itself also leaves much to argue.
The cost of goods is not the sale price. In a 2019 decision, the Seoul High Court described the cost of goods under the Aggravated Punishment Act as the arrival price at the place of import (CIF). Using domestic sale proceeds or the difference from the declared price inflates the amount.
Duty and VAT must be separated. The KRW 50 million threshold for aggravated duty evasion should be judged on customs duty alone; adding import VAT to cross the threshold should be challenged.
The evaded tax must be specifically established. In a 2016 decision, the Supreme Court upheld an acquittal, holding that even when the actual transaction price is estimated by other methods, the prosecution must prove the underlying prices and costs. If Customs applied website prices across the board to calculate duty, this must be examined closely.
4. When does the Punishment of Tax Offenses Act come into play?
Separately from the import stage, how domestic sales were reported must always be checked. Article 3 of the Punishment of Tax Offenses Act punishes tax evasion by “fraud or other unlawful acts” with imprisonment of up to 2 years or a fine of up to twice the evaded tax, with heavier penalties for large amounts.
The key is the “unlawful act”. The Supreme Court has consistently held that merely failing to file or filing a false return, without any further active conduct, is not such an act. On the other hand, double books, false evidence, hiding sales in borrowed-name accounts or destroying records can establish the offense (Article 3(6) of the Act).
The aggravation threshold is also different. Article 8 of the Aggravated Punishment Act applies when annual evaded tax is KRW 500 million or more, and in a 2007 en banc decision the Supreme Court confirmed that this is assessed year by year. Adding up several years to cross the threshold is not accepted.
The procedures also run separately. Customs Act offenses can only be prosecuted upon a complaint by the Commissioner of the Korea Customs Service or the head of a customs office (Article 284 of the Customs Act); tax offenses require a complaint by the National Tax Service or the competent tax office (Article 21 of the Punishment of Tax Offenses Act). The end of a customs investigation does not settle the domestic tax side, so statements must be consistent with the records held by both authorities from the start.
5. If prepaid duties collected from customers were not paid
If a purchasing agent offered “duties included” pricing or a “prepaid duties and VAT” option but actually paid less through undervaluation, the problem goes beyond the Customs Act.
Criminally, using money received for tax payment for other purposes may be embezzlement, and presenting it that way without any intention to pay may be fraud. It also weighs on sentencing. In a 2025 decision, the Incheon District Court viewed offering customers duty-inclusive prices as a sign of seeking greater profit, and weighed heavily that the defendant continued the same practice after being contacted by Customs.
On the tax side, Article 19 of the Customs Act makes a purchasing agent who received the duty amount jointly liable with the consignee in certain cases. If the agent pays the shortfall to Customs, the customers’ tax liability is settled as well, and the payment counts both as restitution and as voluntary payment in mitigation.
Contacting or refunding customers en masse, however, requires caution. It is safer to first tabulate the wording of the sales page, the prepaid amount per order, the amount actually paid and the tax that should have been paid, and then decide the order and scope of payment to Customs and settlement with customers.
6. Can forfeiture be reduced? – The bonded-area proviso and suspended sentences
What makes smuggling so serious is forfeiture. Article 282 of the Customs Act provides for confiscation of smuggled goods and, if they cannot be confiscated, collection of an equivalent amount based on the domestic wholesale price at the time of the offense. Courts view this as punitive, so the full value of the goods can be collected even if little profit remains.
① The bonded-area proviso. The proviso to Article 282(2) states that foreign goods brought into a bonded area after the statutory declaration need not be confiscated. If the goods are not subject to confiscation, there is an argument that the basis for collecting an equivalent amount also falls away. Express shipments often pass through bonded areas such as express cargo centers with an entry declaration, so this is well worth examining.
Courts apply it strictly, however. An appellate panel of the Uijeongbu District Court held in 2024 that submitting a clearance list alone does not meet the requirements of a bonded-area entry declaration, and the Incheon District Court held in 2015 that the order of the entry declaration date and the actual entry date must be checked. Entry declaration records must therefore be obtained shipment by shipment from UNI-PASS cargo tracking. And because the provision is discretionary (“may”), meeting it does not guarantee that forfeiture will be waived.
② Suspension of sentence and forfeiture. The Supreme Court has long held that when the pronouncement of the principal sentence is suspended, the pronouncement of forfeiture can be suspended too. In a 2025 appellate decision, the Ulsan District Court suspended both the fine and forfeiture in the KRW 400 million range in a purchasing-agent case involving some 1,200 items over USD 150 cleared through list clearance at lower declared values. The court considered the early admission and submission of records, no similar prior offenses, limited actual profit and the fact that full forfeiture would be crushing. In 2024, the Namyangju Branch of the Uijeongbu District Court imposed a fine in a case with a combined cost of over KRW 1 billion while suspending imprisonment and forfeiture in the KRW 2 billion range.
There are opposite examples. In 2024, an appellate panel of the Uijeongbu District Court upheld a suspended prison sentence and forfeiture in the KRW 200 million range in a case of some 950 imports with a cost of about KRW 200 million, despite cooperation and payment of duty, citing long repetition and substantial profit. What decided the outcomes was not the number of cases or amounts but actual profit, duration, conduct after detection and the accuracy of the records.
Note that once the Aggravated Punishment Act applies, its minimum sentence makes a suspended sentence practically impossible. That is why the arguments in section 3 about separate acts and the cost calculation are directly linked to forfeiture.
7. If you hold public office – and what to do now
People with another main occupation must also consider how the criminal outcome affects their status. Under the Korean State Public Officials Act, for example, a suspended prison sentence leads to automatic retirement, while a fine or a suspended pronouncement of sentence does not, except for certain offenses such as bribery or job-related embezzlement (Articles 33 and 69). The strategy should therefore aim at “a fine or a suspended pronouncement”, focusing on keeping the Aggravated Punishment Act out of the case. Disciplinary issues for breach of the ban on profit-making activities (Article 64) must be reviewed separately, and resigning in haste before any outcome can actually hurt at sentencing.
If Customs has contacted you, prepare in this order.
Stop. End the same type of transactions immediately. Continuing after detection is weighed most heavily by the courts.
Preserve records. Do not delete order, payment, waybill or sales page data. Deletion can look like destruction of evidence, and favorable evidence disappears with it.
Shipment-by-shipment table. Link order, overseas payment, waybill, clearance method (regular declaration, list clearance, international mail), actual price and declared price on one line. This is the basis for arguing the offense, the number of offenses and the cost of goods.
Bonded-area entry records. Print the entry declaration history for each cargo control number from UNI-PASS.
Sort out the taxes. Calculate customs duty, import VAT and domestic sales reporting by tax type and by year, and decide the timing of amended returns and payment with your lawyer.
Prepare your statement. Before the first interview, establish who decided the clearance method and who entered the price information, and do not send specific amounts and facts around by messenger.
8. Frequently asked questions
Q. I only imported goods with a 0% duty rate. Can I still be punished?
If goods that did not qualify for list clearance entered without a declaration, smuggling can apply regardless of tax. Without customs duty, however, duty evasion is hard to establish, and this affects the penalty and sentencing, so tabulate the duty rate per item accurately.
Q. With hundreds of orders, does the Aggravated Punishment Act always apply?
No. Courts determine the number of offenses by the actual import acts and calculate the cost of goods at the arrival price, not the sale price. Looked at shipment by shipment, the ordinary Customs Act often applies.
Q. If I pay the missing tax to Customs, does the criminal case go away?
Payment does not erase the offense. Early voluntary payment, however, is an important factor for a settlement by notice of disposition, for sentencing and for a suspended sentence.
Q. Once the customs investigation is over, is the tax office issue over too?
No. Customs files complaints for Customs Act offenses, while the National Tax Service handles tax offenses for unreported domestic sales. If your domestic sales filings do not match what you submitted to Customs, a separate investigation can follow.
Closing remarks
Undervaluation cases involve the Customs Act, the Punishment of Tax Offenses Act and the Criminal Act at once, and focusing on just one track easily leaves damaging statements in another. Korean case law shows that with similar numbers and amounts, some cases ended with a fine and suspended forfeiture while others ended with prison sentences and forfeiture of hundreds of millions of won. The difference mostly came from the early response and how well the records were organized.
If you have received a summons or a pre-assessment notice from Korean Customs, gather your order and payment records and the documents you received, and contact me through the KakaoTalk open chat below or by phone (+82-10-4692-6821).
More case videos on customs violations and forfeiture are on my YouTube channel (in Korean).
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Attorney responsible for this advertisement: Heejun Lee, Partner, Yeoam Law Firm · Phone +82-10-4692-6821
This article is general information about Korean law, not legal advice. The outcome of any case depends on how the goods were imported and the specific facts.
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