Teenage Chaebols' 24 Trillion Won Internal Transactions Included in Fair Trade Commission's 'Bid Rigging' Watchlist

Regulation Targets for Private Interest Exploitation: Samsung 1→11, Hyundai Motor 4→8, SK 1→9 Companies

[Asia Economy Reporter Moon Chaeseok] The Fair Trade Act has been completely revised, bringing internal transactions worth 24 trillion won among the top 10 major conglomerates under the Fair Trade Commission's monitoring for 'preferential treatment of related parties.'

According to the National Assembly and the Fair Trade Commission on the 13th, under the amended Fair Trade Act passed in the plenary session on the 9th, the scope of regulation on preferential treatment of related parties will expand from the end of next year to include listed and unlisted companies where the controlling family holds 20% or more of shares, as well as subsidiaries in which these companies hold more than 50% of shares.

The current Fair Trade Act prohibits unfair benefits to listed companies where the controlling family holds 30% or more shares and unlisted companies with 20% or more shares. With this amendment, many companies previously outside the monitoring scope will be added to the regulation target.

In particular, among the top 10 major conglomerate groups with controlling families (Samsung, Hyundai Motor, SK, LG, Lotte, Hanwha, GS, Hyundai Heavy Industries, Shinsegae, CJ), the number of companies subject to private interest regulation was 29 last year, but it will surge to 104.

Internal transaction amounts among affiliates will also increase from 5.42 trillion won last year to 23.96 trillion won.

For Samsung, only Samsung C&T, where the controlling family holds 31.63% shares, was subject to regulation, but this will increase to 11 companies. The monitored internal transaction amount will also grow from 5.1 trillion won to 7.56 trillion won.

This is because four subsidiaries of Samsung C&T, including Samsung Welstory, Samsung Life Insurance (with a 20.82% stake), and five subsidiaries of Samsung Life Insurance will be newly added to the regulation target.

However, if the controlling family sells shares of Samsung Life Insurance before the law takes effect at the end of next year and lowers their stake to the 10% range, Samsung Life Insurance and its five subsidiaries will all be excluded.

For Hyundai Motor, the number of companies subject to preferential treatment regulation will increase from 4 to 8, and the related internal transaction amount will rise from 20 billion won to 3.15 trillion won.

This includes Hyundai Glovis (a logistics company with a 29.99% stake held by the controlling family), its subsidiaries, and subsidiaries of Seorim Development and Hyundai Material, totaling four additional companies.

SK's companies subject to preferential treatment regulation will increase from 1 to 9. In addition to SK Discovery, which was already regulated, SK (with a 28.59% stake held by the controlling family), five subsidiaries of SK, and two subsidiaries of SK Discovery will be added.

The internal transaction amount subject to monitoring for preferential treatment will increase from zero to 2.55 trillion won.

Additionally, LG will increase from 0 to 4 companies, Hanwha from 1 to 7, GS from 12 to 30, Hyundai Heavy Industries from 2 to 6, Shinsegae from 1 to 18, and CJ from 5 to 9.

Lotte will have two companies subject to preferential treatment regulation regardless of the law amendment.

The Fair Trade Commission monitors disclosures of internal transactions and transaction details of major domestic conglomerates and mid-sized companies, as well as tax data from the National Tax Service, and conducts investigations if abnormal signs are detected.

In January 2018, the Fair Trade Commission revealed that Hite Jinro unfairly supported the second generation of the controlling family through the so-called 'beer can toll,' and since then, it has uncovered preferential treatment and unfair support in major business groups such as Daelim, Hyosung, Taekwang, Mirae Asset, SPC, and Kumho Asiana.

Currently, Samsung and SK are under investigation for allegedly unfairly supporting Samsung Welstory and SK Siltron, respectively.

With the increase in internal transaction amounts caught under the Fair Trade Commission's preferential treatment monitoring due to the law amendment, cases of sanctions by the Fair Trade Commission are expected to rise.

A Fair Trade Commission official said, "The purpose of the law is to reduce regulatory blind spots and regulate actions that undermine corporate competitiveness for the benefit of the controlling family," adding, "With one year left until enforcement, we expect a preventive effect as companies voluntarily correct preferential treatment of related parties."