A small and medium-sized South Korean software (SW) company was informed by the South Korean police that it would have to go through an investigation as its product that was exported to Japan last month has been considered as a strategic item. When the company was exporting the product, it was not aware of the fact that the product was considered as a strategic item. It also realized later than it did not report the product that was exported to other countries as a strategic item. Although it hurriedly hired a legal team, it has already broken the law.
The company was put in a situation where it could have been a lawbreaker by not being fully aware of South Korea’s strategic item exportation system while resuming exportation of its product that had faced a setback due to COVID-19. This situation raised an issue where small and medium-sized companies need proper information about the strategic item exportation system and support due to relatively lack of capability to take legal actions.
There have been many similar cases recently where South Korean SW companies received investigations by not being fully aware of the system while they have begun to export their products. The strategic item management system was implemented through the Wassenaar Accord that was put into place in order to prevent industrial goods that can be used to make conventional arms to troubled regions and terrorism-sponsoring countries. South Korea also designated a list of strategic goods and has been managing the list.
SW is also considered as a strategic good in South Korea. However, only SW that is applied with encryption technology is considered as a strategic good. Once SW includes protocols and algorithms related to encryption, a company needs to report the SW before it can export the SW to other countries. If a company does not report to the government, CEO of the company can be given a sentence under seven years or pay a fine that is five times the price of the export.

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Because most of SW related to security uses encrypted algorithms, most of SW companies are well aware of the strategic item management system. They do not have to worry about violating laws as they would have to report their products before the exportation. The issue is with regular SW such as DBMS (database management system) and ERP (enterprise resource planning). As security has started to become an important issue, encryption is basically added to most of SW. However, most of companies that provide regular SW believe that their products are not subjected to the strategic item management system.
“Most of SW companies that were subjected to violating the law complained about feeing unjust as they were not fully aware of the system.” said a representative from Korea Software Industry Association on Wednesday. “Because many encrypted modules utilize public SW, many SW companies do not believe that it is their fault for violating the law.”
This issue was also a problem three years ago. At that time, a major South Korean IT service provider faced a same issue as it was not fully aware of the system. Although the company along with the industry took actions by hiring a legal team, small and medium-sized companies still lack awareness about the system and ability to take necessary actions.
“Not understanding the system that needs to be known has caused many SW companies violating the system.” said Oh Seok-joo who is the chairman of Korea Software Industry Association’s Overseas Expansion Committee. “Relevant departments must inform SW companies about the system so that an environment where SW companies can safely export their products can be established and provide windows for consultation and support for small and medium-sized companies that lack abilities to take necessary actions.”
Staff Reporter Kim, Jiseon | river@etnews.com