April 19, 2024
Economy
Antitrust watchdog vows to curb chaebol intragroup deals
[THE INVESTOR] The Fair Trade Commission said it will impose stronger sanctions against conglomerates that funnel contracts and business orders to their affiliates, while stepping up investigations into the appropriation of technologies and abuse of intellectual properties, which they said hinder fair competition in innovation.
“In order to prevent the abuse of economic power by large companies, we will strictly impose sanctions on chaebol’s unfair intersubsidiary dealings that could lead to expedient corporate succession and bring damage to SMEs,” the FTC said.
The announcement came during a meeting on Jan. 25 presided over by Prime Minister Lee Nak-yeon to share each ministries’ plans and goals for 2018. The FTC’s reporting session was joined by the Justice Ministry, the Anti-Corruption & Civil Rights Commission and the National Police Agency, among others.
The FTC has already been taking steps against the practice. This month, the commission imposed a fine of 10.7 billion won (US$10 million) on local distiller HiteJinro for funneling contracts to companies its ownership family also owns.
“We want to give a message to conglomerates that it is difficult to inherit fortune and honor expediently. The mere news of the FTC’s investigation could mean damage to the reputation (of the companies),” FTC Chairman Kim Sang-jo said in an interview with a local media outlet this month, referring to the HiteJinro case.
The FTC is now looking into whether conglomerate group Daelim and food company Harim are also involved in unfair intersubsidiary dealings.
The antitrust watchdog also announced during the briefing, “We will investigate profit structures and systems of corporate foundations and holding companies set by conglomerates to prevent the expedient expansion of the controlling power of owner families.”
Corporate foundations and holding companies have been criticized for strengthening ownership families’ control and for being a channel to pocket profits.
Corporate foundations are mostly set up with the aim of contributing to society through scholarships or research funds. Subsidiaries that donate money to the foundations are therefore given various tax benefits. Some families are reported as having used the foundations to reduce inheritance and gift taxes or to strengthen the family’s power.
In February 2016, Samsung Life Public Welfare Foundation bought 2 million shares of Samsung C&T to sever the circular shareholding system, following the merger of Samsung C&T and Cheil Industries. This made the head of the foundation and Samsung Electronics Vice Chairman Lee Jae-yong increase his control over Samsung C&T.
The FTC’s announcement reflects Kim’s changing stance on conglomerates since he took office six months ago. In his inaugural address, he implied the necessity of conglomerate reform, but did not directly target conglomerates. Kim expected voluntary reform from chaebol. However, things have changed in recent months. In November, Kim said he was “doubtful about conglomerates’ willingness to reform” during a meeting with CEOs of the nation’s top five groups. Last month, the FTC urged Samsung SDI to unload 4 million shares of Samsung C&T to impose not only financial burden on Samsung but to also weaken the conglomerate’s de facto leader Lee Jae-yong’s control over the group.
By Shin Ji-hye/The Korea Herald (shinjh@heraldcorp.com)
“In order to prevent the abuse of economic power by large companies, we will strictly impose sanctions on chaebol’s unfair intersubsidiary dealings that could lead to expedient corporate succession and bring damage to SMEs,” the FTC said.
The announcement came during a meeting on Jan. 25 presided over by Prime Minister Lee Nak-yeon to share each ministries’ plans and goals for 2018. The FTC’s reporting session was joined by the Justice Ministry, the Anti-Corruption & Civil Rights Commission and the National Police Agency, among others.
The FTC has already been taking steps against the practice. This month, the commission imposed a fine of 10.7 billion won (US$10 million) on local distiller HiteJinro for funneling contracts to companies its ownership family also owns.
“We want to give a message to conglomerates that it is difficult to inherit fortune and honor expediently. The mere news of the FTC’s investigation could mean damage to the reputation (of the companies),” FTC Chairman Kim Sang-jo said in an interview with a local media outlet this month, referring to the HiteJinro case.
The FTC is now looking into whether conglomerate group Daelim and food company Harim are also involved in unfair intersubsidiary dealings.
The antitrust watchdog also announced during the briefing, “We will investigate profit structures and systems of corporate foundations and holding companies set by conglomerates to prevent the expedient expansion of the controlling power of owner families.”
Corporate foundations and holding companies have been criticized for strengthening ownership families’ control and for being a channel to pocket profits.
Corporate foundations are mostly set up with the aim of contributing to society through scholarships or research funds. Subsidiaries that donate money to the foundations are therefore given various tax benefits. Some families are reported as having used the foundations to reduce inheritance and gift taxes or to strengthen the family’s power.
In February 2016, Samsung Life Public Welfare Foundation bought 2 million shares of Samsung C&T to sever the circular shareholding system, following the merger of Samsung C&T and Cheil Industries. This made the head of the foundation and Samsung Electronics Vice Chairman Lee Jae-yong increase his control over Samsung C&T.
The FTC’s announcement reflects Kim’s changing stance on conglomerates since he took office six months ago. In his inaugural address, he implied the necessity of conglomerate reform, but did not directly target conglomerates. Kim expected voluntary reform from chaebol. However, things have changed in recent months. In November, Kim said he was “doubtful about conglomerates’ willingness to reform” during a meeting with CEOs of the nation’s top five groups. Last month, the FTC urged Samsung SDI to unload 4 million shares of Samsung C&T to impose not only financial burden on Samsung but to also weaken the conglomerate’s de facto leader Lee Jae-yong’s control over the group.
By Shin Ji-hye/The Korea Herald (shinjh@heraldcorp.com)
