[Asia Economy Reporter Choi Seok-jin, Legal Affairs Specialist] The prosecution has filed a summary indictment against Lotte Chilsung Beverage Co., Ltd. for improperly providing personnel support to its affiliate, MJA Wine Co., Ltd.
The Fair Trade Investigation Division of the Seoul Central District Prosecutors' Office (Chief Prosecutor Lee Jeong-seop) filed a summary indictment against Lotte Chilsung Beverage on the 27th for violating the Fair Trade Act.
According to the prosecution, Lotte Chilsung Beverage is accused of unfairly providing personnel support by having 26 of its own employees perform the core tasks of its affiliate and 100% subsidiary MJA Wine, including accounting, store management, service fee management, and sales closing on its behalf.
MJA Wine rented department store wine shops jointly with other wine retailers and sold wine supplied by Lotte Chilsung Beverage. However, MJA directly employed only 2 to 3 staff members, while all other tasks were carried out by Lotte Chilsung Beverage employees. Salaries for the 26 Lotte Chilsung Beverage employees were also paid by Lotte Chilsung Beverage.
Article 45 (Prohibition of Unfair Trade Practices) Paragraph 1 Item 9 of the Fair Trade Act prohibits business operators from unfairly providing funds, personnel, or other support to related parties or other companies in a way that may harm fair trade.
Additionally, Article 124 (Penalties) Paragraph 1 Item 10 of the same law stipulates that violations may be punished by imprisonment of up to three years or a fine of up to 200 million won.
However, in the case of corporations, only fines can be imposed according to Article 128 (Joint Punishment Clause).
MJA Wine, which sells wines such as Majang produced by Lotte, was established in 2008 when Lotte Chilsung's liquor business division was part of Doosan Liquor BG.
At that time, under the Liquor Tax Act, liquor manufacturers were not allowed to sell wine directly at retail, so Lotte Chilsung Beverage used MJA Wine as a distribution channel. However, after the Liquor Tax Act was amended in 2011, wine producers were allowed to sell directly at retail.
Earlier, in April last year, the Fair Trade Commission imposed fines of 770 million won on Lotte Chilsung Beverage for unfairly supporting MJA Wine, which had fallen into complete capital erosion, and 478 million won on MJA Wine, which received the support, and reported Lotte Chilsung Beverage to the prosecution.
However, considering that the issue arose from wrong industry practices formed in the relevant market to avoid restrictions under the then-applicable Liquor Tax Act that prohibited liquor importers from retail sales, the Fair Trade Commission did not indict company executives but only the corporation.
A prosecution official stated, "MJA Wine continuously posted losses or very minimal operating profits from 2012 to 2019, and without support from its parent company, a large corporation, it would have been forced out of the market," adding, "This case of unfair support prevented the market exit of a failing company."
He continued, "The personnel support from a large wine importing company not only provides benefits equivalent to the salaries of the employees involved but also grants free access to wine sales experience, know-how, and internal information from the supplier. Moreover, it allows competition in the market without bearing any employment risks for a large number of personnel, resulting in blocking new market entry by small and medium-sized wine retailers into the department store market."
Additionally, the official stated, "Going forward, the Fair Trade Investigation Division will strive to restore fair competition order to prevent so-called 'gold spoon companies'?subsidiaries of large corporations that survive and grow regardless of their own competitiveness?from emerging in the market."
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