Fair Trade Commission "No Involvement of Owner in Preferential Business Allocation"
Possible Entry into New Industries like Promissory Notes
'Owner's Involvement' Divides Mirae Asset's Judgment
Companies Under Similar Investigation Show Interest
Jung Jin-wook, Director of the Corporate Merger Division at the Korea Fair Trade Commission, explains the process and conclusion of the sanction decision regarding the provision of unfair benefits to related parties of Mirae Asset Group affiliates at the Government Complex Sejong on the 27th. (Photo by Moon Chae-seok)
[Asia Economy Reporters Joo Sang-don and Moon Chae-seok] "Although the same individual, Park Hyun-joo, mentioned the business direction, profit status, and advantages of Blue Mountain Country Club and Four Seasons Seoul Hotel during the early stages of the business, it was judged that there was no direct instruction for use. Therefore, it was difficult to consider him as a serious violator of the Fair Trade Act, and he was not reported to the prosecution."
The Korea Fair Trade Commission (KFTC) explained the reason for not reporting Park Hyun-joo, Chairman of Mirae Asset Group, to the prosecution in this way. On the 27th, the KFTC announced at a press briefing held at the Government Complex Sejong that it had decided to impose corrective orders and a fine of 4.391 billion KRW on Mirae Asset Group and Chairman Park. From Mirae Asset Group’s perspective, this means avoiding the worst-case scenario of prosecution against Chairman Park, instead receiving corrective orders and fines.
Jung Jin-wook, Director of the Corporate Group Division at the KFTC, explained, "Mirae Asset Group’s affiliates engaged in transactions on a considerable scale with Mirae Asset Consulting, in which a related party holds 91.86% of shares, without reasonable consideration or comparison, gaining benefits. However, we judged that there was no direct instruction from Chairman Park regarding the use of the golf course or hotel."
The KFTC viewed that Mirae Asset Group unfairly allocated work to affiliates with large shareholdings by the controlling family but judged that there was no direct involvement by the controlling family in this process. Therefore, instead of prosecution, they decided on a fine. They also stated that they could not find concrete and clear evidence of direct involvement by the controlling family.
Director Jung said, "According to the KFTC’s prosecution guidelines, only those who seriously violate the Monopoly Regulation and Fair Trade Act (Fair Trade Act) can be reported to the prosecution. Since we did not secure clear evidence that the violations by Chairman Park and Mirae Asset Group entities were serious, we could not report them to the prosecution."
He added, "It appears that Chairman Park received reports through management strategy meetings and tacitly approved them, but since there was no evidence of direct instructions, we took administrative action instead of prosecution."
The KFTC raised issues regarding Mirae Asset Group’s private interest appropriation, unfair work allocation, and the governance structure centered on Chairman Park. They investigated the allocation of group work and operational profits to Mirae Asset Consulting, in which the Park family holds an overwhelming 91.86% stake.
Mirae Asset Group’s affiliates invested in Four Seasons Seoul Hotel and Blue Mountain Country Club through funds and then entrusted operations to Mirae Asset Consulting. The KFTC judged this as unfair work allocation. The group’s governance structure is arranged such that Mirae Asset Consulting controls Mirae Asset Capital and Mirae Asset Global Investments, and Mirae Asset Capital controls Mirae Asset Securities and Mirae Asset Life Insurance.
The Monopoly Regulation and Fair Trade Act requires that when dealing with companies in which the controlling family holds 30% or more of shares in listed companies or 20% or more in unlisted companies, the possibility of unfair work allocation must be examined due to concerns about private interest appropriation. The selection of transaction partners must go through appropriate procedures involving objective and reasonable consideration and comparison of business capability, price, and transaction conditions.
In this case, the KFTC judged Mirae Asset Group’s actions as "transactions on a considerable scale without reasonable consideration or comparison," rather than providing business opportunities with significant benefits or trading under significantly favorable conditions. Through this, they concluded that the controlling family obtained unfair benefits. This is the first case applying the act of support on a considerable scale alone among unfair benefit provision acts to related parties.
The KFTC found that Mirae Asset Group set or effectively forced the principle of transactions with Blue Mountain CC and Four Seasons Hotel operated by Mirae Asset Consulting at the group level without objective and reasonable consideration or comparison by each affiliate regarding the golf course and hotel they intended to transact with. Decision-making was made not by each affiliate but through the intervention of Mirae Asset Capital. As evidence, the KFTC cited Mirae Asset Capital’s management of group affairs, affiliate audits, performance evaluations, and operation of the group purchasing task force (TF) during the violation period.
During the 2 years and 7 months that Mirae Asset Consulting leased and operated Blue Mountain CC, the transaction amount between affiliates and Blue Mountain CC was 29.7 billion KRW, and with Four Seasons Hotel was 13.3 billion KRW, totaling 43 billion KRW. This accounts for a considerable scale, representing 23.7% of the total sales (181.9 billion KRW) of Blue Mountain CC and Four Seasons Hotel during the period.
Mirae Asset Group’s position is that "Mirae Asset Consulting was in a deficit state, so there was no support effect," but the KFTC’s judgment differed.
Director Jung emphasized, "Both the golf course and hotel businesses require huge investments, have large fixed costs, and face fierce competition, making quick stabilization difficult. However, in the case of Blue Mountain CC, due to affiliate sales accounting for about 72% at the peak of the violation in 2016, it was able to turn a profit within three years after opening in 2013."
Hanwha Group, SPC (SPC Samlip), Kumho Asiana (Asiana Airlines), and others under investigation by the KFTC for similar allegations are closely watching the background of this decision. Hanwha Group, which recently received a review report (equivalent to a prosecution indictment) from the KFTC, is accused of unfairly allocating work to Hanwha S&C, an IT service company wholly owned by the three sons of Chairman Kim Seung-yeon. Kumho Asiana is under investigation for unfair support, and SPC, which faced controversies over illegal dispatch of bakers and wage suppression, is being investigated for unfair internal transactions.
Meanwhile, Mirae Asset Group was able to enter the issuance of promissory notes market by avoiding prosecution from the KFTC. This is because the financial authorities no longer have grounds to deny approval for the promissory note business due to controversies over Chairman Park’s suitability as a major shareholder.
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