April 19, 2024

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[THE INVESTOR] The Korea Fair Trade Commission has recently begun probes of four software firms -- Kakao, NC SOFT, Hanwha S&C and Hanjin Information Systems and Telecommunication -- for their heavy-handed subcontracting practices with smaller suppliers.

According to industry sources on Aug. 16, the companies are accused of making verbal contracts without specifying details, delaying or reducing payments and enforcing unfair commitments. 

Hanwha Group headquarters in central Seoul

Hanwha S&C and Hanjin Information Systems and Telecommunication, affiliated with two big conglomerates Hanwha and Hanjin, have been under investigations for illegal inter-unit trading as well.

Software subsidiaries in which the ownership family owns major stake are frequent offenders in conducting illegal transactions with sister firms, as inter-unit trading is often used to increase the revenue and stock value of the firms.

Hanwha S&C is 100 percent owned by Hanwha Group Chairman Kim Seung-yeon’s three sons. Since its establishment in 2002, its sales surged from 83 billion won (US$75.9 million) to 872 billion won last year. Its inter-unit trading made up 52.3 percent of total sales for 2015.

Hanjin Information Systems and Telecommunication also saw 75.6 percent of its total sales in transactions with other Hanjin firms. Hanjin Group Chairman Cho Yang-ho owns 0.65 percent stake in the company, while his only son Cho Won-tae serves as CEO.

The firm last year acquired the call center business of Hanjin’s IT service firm Uniconverse, in which the chairman’s three children owned a combined 94.46 percent stake, after the KFTC started an investigation on antitrust charges.

By Lee Ji-yoon (jylee@heraldcorp.com)