Administrative Litigation Countermeasures... Judicial Risks 'Cheopcheopsanjung'

Samsung Engages in Legal Battle with Fair Trade Commission... Allegations of Accounting Fraud and Merger Nullification

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyewon] The Korea Fair Trade Commission (KFTC) has imposed record-breaking fines on major Samsung Group affiliates and referred the case to the prosecution, prompting Samsung to take the administrative litigation route. This adds another judicial risk while Samsung Electronics Vice Chairman Lee Jae-yong, currently in custody, has been undergoing months of trial over allegations of Samsung C&T's unfair merger.

According to legal circles on the 25th, Samsung Group is simultaneously facing several lawsuits, including the first trial for Samsung C&T's unfair merger allegations, the appeal trial for Samsung BioLogics' evidence destruction allegations, administrative litigation over Samsung BioLogics' accounting fraud allegations, and civil and appeal trials over the invalidation of Samsung C&T's merger. Moreover, the legal battle became inevitable after the KFTC imposed a fine of 234.927 billion KRW on Samsung Welstory for preferential treatment allegations and referred Samsung Electronics to the prosecution yesterday. Samsung Electronics announced immediately after the KFTC's statement, "It is difficult to accept the one-sided facts and legal judgments. We will file an administrative lawsuit," signaling a legal response.

One reason Samsung strongly opposes the KFTC's sanctions this time is that group catering has been an internal transaction within large corporations for over 30 years as part of employee welfare, a long-standing practice. However, when the KFTC targeted Samsung for sanctions, Samsung itself expressed willingness to open up the business to correct the practice and applied for a consent decree with the KFTC but was rejected and subsequently faced a heavy penalty.

This KFTC sanction is the largest fine ever related to unfair support acts. If the KFTC loses the administrative lawsuit against Samsung, it must refund the fines, which would inevitably cause enormous social costs. According to the KFTC, the rate of losing court cases against its sanctions from 2015 to 2019 reached 25%. Considering that KFTC administrative lawsuits involve two levels of trial, it means that the KFTC's decisions, equivalent to first-instance rulings, are frequently overturned in higher courts.

Yesterday, the 7th trial was held for Vice Chairman Lee and others, who were indicted on charges including violations of the Capital Markets Act and the Financial Investment Services and Capital Markets Act. Several witness examinations were conducted for former Samsung Securities team leader Han, and the second witness, Lee, who was dispatched to the Samsung C&T merger task force (TF), is scheduled to be examined at the 8th trial on the 1st of next month. It is said that the number of witnesses waiting for examination could reach up to 250. This implies that the first trial for Samsung C&T's unfair merger allegations could take several years.