When does silence in a transaction amount to fraud? Supreme Court Decision 2005Do5774 on 'deception' and the duty to disclose

Question

Article 347(1) of the Criminal Act punishes a person who 'deceives a person' and thereby receives delivery of property or obtains a property advantage. The provision does not say what 'deception' covers, or when failing to speak is itself deception. Related questions are how a shared criminal plan is formed under Article 30, how the amount defrauded is computed under Article 3(1) of the Act on the Aggravated Punishment of Specific Economic Crimes where part of a consideration is later paid to the victim, and what 'habituality' means under Article 351.

Decision 2005Do5774 raises these questions in a multi-level selling scheme. The defendants induced people who wanted to become multi-level sales members to take on obligations and to pay money as the cost of purchasing goods, promising high 'sponsorship commissions' that were almost impossible to realise; they argued that they had sufficiently explained that commissions might not be paid if continuing sales did not occur. The Busan High Court, in judgment 2005No166 of 14 July 2005, convicted them, and the defendants appealed on the deception, conspiracy, amount and habituality points.

Material to check

The statutes are Article 347 of the Criminal Act, which punishes deception leading to delivery of property or acquisition of a property advantage and, in paragraph 2, the same penalty where a third party is made to receive the property or the advantage; Article 30, under which where two or more persons jointly commit an offence each is punished as a principal; and Article 351, under which a person who habitually commits the offences of Article 347 to the preceding article has the statutory penalty increased by up to one half. Article 3(1) of the Act on the Aggravated Punishment of Specific Economic Crimes provides heavier punishment where the value of the property or property advantage acquired, the 'amount gained', reaches a statutory threshold, with brackets of life imprisonment or at least five years' imprisonment and of at least three years' imprisonment. The current text of Article 347 was last amended on 29 September 2026 and that of Article 3(1) on 19 December 2017; the decision cites the provisions without stating their penalties as at 2005.

The decision is Decision 2005Do5774 (28 October 2005). It cites Decision 2003Do7828 (9 April 2004) on the meaning of deception and the duty to disclose, Decision 2000Do3483 (10 November 2000) on the elements of conspiracy and on the 'amount gained', Decision 2004Do126 (12 March 2004) on conspiracy and on the joint principal who did not kill the victim himself, Decision 2000Do1899 (7 July 2000) on conspiracy, on the amount defrauded where consideration is partly paid, and on separate fraud offences for separate victims, and Decisions 86Do778 (10 June 1986) and 95Do955 (11 July 1995) on habituality. Decision 2001Do1707 is cited on the amount defrauded; its text could not be opened, and it is named here by number only.

Possible readings

On the first reading, Article 347 reaches beyond lies about the core of a contract. As the decision puts it, citing Decision 2003Do7828, deception 'broadly means every act, active or passive, that abandons the duty of good faith and sincerity to be observed between parties in a property transaction relationship'; it need not be a false statement about an important part of a legal act, and it is enough that it concerns a fact forming the basis of the judgment by which the counterparty is put into error and led to make the property disposition the actor hopes for. Where the counterparty would not have entered the transaction had it been told of a certain circumstance, the person taking property by the transaction must, under the principle of good faith, tell the counterparty beforehand, and failing to do so is deceiving it by keeping silent on a fact that should have been disclosed.

On the second reading, a shared criminal plan needs no particular form. As the decision states, citing Decision 2000Do3483, it is enough that two or more persons combine their wills to commit a crime and realise it; even without a full common deliberation, a conspiracy is formed where they communicate sequentially or tacitly, and once formed, one who took no part in the execution bears responsibility as a joint principal for the other conspirators' acts. Decision 2004Do126 is cited to like effect, holding that merely not having personally killed the victim does not free one from liability as a joint principal.

On the third reading, once property is handed over on the strength of deception the crime is complete, and later payments do not shrink what was taken: as the decision states, citing Decision 2000Do1899, even where consideration is partly paid the amount defrauded is not the value of the property delivered less the consideration but all of the property delivered. Where money actually passed to the victim as commissions and the victim then used it to buy again, the decision adds, a new legal interest is infringed and the re-purchased sum is not subtracted; only reinvestment recorded on the books without any real transfer of funds is left out of the total, as the decision states while citing Decision 2001Do1707. Finally, habituality in habitual fraud, as the decision states citing Decisions 86Do778 and 95Do955, is a habitual tendency to repeat fraud; prior fraud convictions are an important datum, but where the number of acts, the means and method, the motive and all the circumstances show a habit of fraud, habituality must be recognised even without them.

What the decisions held

The Supreme Court dismissed the appeals in their entirety and credited 95 days of detention after the appeal against Defendant 1's principal sentence. On the violation of the Door-to-Door Sales Act it held that the court below had properly found that no 'AD business operator' existed in the defendant company or was at most nominal, and that the defendants had imposed obligations on persons who wanted to become multi-level sales members. On deception it upheld the finding that the defendants had not adequately explained that sponsorship commissions might not be paid if continuing sales did not occur, and that had the victims accurately known the company's financial state and business plan, how the defendants procured the goods, the cost of the goods supplied, the source of the commissions and the additional sales needed to fund them, they would not readily have made the purchases; the defendants had deceived the victims with promises of high commissions that were almost impossible to realise and taken the sums stated in the judgment.

On conspiracy, the court below had found that Defendant 3, as managing director of the defendant company, communicated sequentially or tacitly with Defendant 1 and the others and joined the criminal enterprise though there was no full common deliberation, and the Supreme Court held that finding sound. On the amount, it upheld the conclusion that sums the victims received into bank accounts as commissions and later used to repurchase goods were not excluded from the amount defrauded, because a new legal interest had been infringed, and that where the defendants actually sold the goods to the victims and took the investment money in the form of the price while later paying commissions, neither the commissions nor the value of the goods was excluded. On habituality, it held that despite the absence of prior fraud convictions the defendants' methods, the number of acts, the motive and the means showed a habitual tendency to repeat fraud at the time of the offences.

On sentencing, the Supreme Court stated that in a case where a term of imprisonment of less than ten years or a fine has been imposed, the contention that the sentence below is excessive is not a lawful ground of appeal to the Supreme Court.

Points left open

The duty to disclose is stated by reference to the circumstances of each transaction, and the decision does not fix a general test for which omissions cross into deception. The defendants said they had explained the risk that commissions might not be paid; the decision upholds the finding that their explanation was insufficient, but it does not decide what disclosure would have been enough, leaving the boundary to case-by-case fact-finding.

A tension is left unresolved between the rule that the amount defrauded is all of the property delivered even where consideration is partly paid, applied here, and the statement of Decision 2000Do3483 that the 'amount gained' under Article 3(1) of the Act on the Aggravated Punishment of Specific Economic Crimes means a substantive, real gain. The decision computes the amount for that provision without explaining how the two standards meet. It also leaves open how many acts and what record suffice for habituality without a prior fraud conviction, and where the limits of the bar on sentencing appeals lie beyond a term under ten years or a fine.

When to reconsider

We revisit this brief if Article 347 or Article 351 of the Criminal Act or Article 3 of the Act on the Aggravated Punishment of Specific Economic Crimes is amended in a way that changes the rules on deception, habituality or the amount gained, if a later Supreme Court decision reconciles the full-delivered-property rule with the substantive 'amount gained' standard, or if a later decision sets a general test for the duty to disclose.

Statutes referred to

• 형법 제347조, 제30조, 제351조
• 특정경제범죄 가중처벌 등에 관한 법률 제3조

Decisions referred to

• 대법원 2005. 10. 28. 선고 2005도5774 판결 · Decision ledger
• 대법원 2004. 4. 9. 선고 2003도7828 판결
• 대법원 2000. 11. 10. 선고 2000도3483 판결 · Decision ledger
• 대법원 2004. 3. 12. 선고 2004도126 판결
• 대법원 2000. 7. 7. 선고 2000도1899 판결 · Decision ledger

Verification status

The texts read for this brief were read at the National Law Information Center (law.go.kr) on 24 October 2026. The decision was read in its published holdings, cited provisions, cited precedents and full reasons, and the cited articles and decisions in their current text and published holdings and summaries, except Decision 2001Do1707, whose text could not be opened.