FTC: "Significant Undermining of Policies to Curb Economic Concentration"
Omitted Companies Enjoyed Corporate Tax Benefits as SMEs
Shin Dongwon, Chairman of Nongshim, has been reported to the prosecution for deliberately failing to report 39 affiliated companies, including 10 companies operated by his relatives, to the competition authorities.
On August 6, the Fair Trade Commission (FTC) announced that it had decided to file a criminal complaint against Chairman Shin for failing to report 39 companies?including 10 relative-owned companies and 29 executive-owned companies?when submitting materials required for the designation of Nongshim as a large business group subject to public disclosure.
According to the FTC, from 2021 to 2023, Chairman Shin omitted data on 10 companies in which his maternal uncle's family holds shares and participates in management when submitting materials necessary for the FTC’s designation of large business groups subject to public disclosure.
The 10 companies include Jeonil Grinding, Gumi Logistics, Ilheung Construction, Seyoung Transport, Namyang Transport, Ulsan Logistics Terminal, Doya Total Logistics, DW International Logistics Center, Namyang Transport, and BL International.
It was also found that 29 companies in which executives working at the omitted relative-owned companies held shares were left out of the required submissions during this period.
The FTC believes that the omitted relative-owned companies, such as Jeonil Grinding, are related companies of affiliates with a high transaction volume with Nongshim, and that the existence of these companies could have been sufficiently identified through affiliate audit reports and other documents.
The omitted relative-owned companies were held by Chairman Shin’s maternal uncle. Considering that the uncle’s family attended the funeral of the late former Chairman Shin Chunho and the wedding of Chairman Shin Dongwon’s daughter, the FTC recognizes an ongoing relationship between the families. In particular, it was confirmed that, during the 2023 data submission process, Nongshim was internally aware that some of the executive-owned companies qualified for affiliate designation.
The FTC stated, "Given that no affiliate reporting was made until July 2023, when the FTC conducted its on-site investigation, and that the relevant facts were concealed, there is a high likelihood that the parties were aware of their actions."
The total assets of the omitted companies amounted to approximately 93.8 billion won as of 2021. Nongshim’s total assets amount to about 4.9339 trillion won.
Due to the omission of these companies, Nongshim was excluded from the designation as a large business group subject to public disclosure in 2021. As a result, the company was able to avoid all regulations, including the prohibition and disclosure obligations concerning the provision of unfair benefits to at least 64 related parties. Some of the omitted companies were recognized as small and medium-sized enterprises and received tax benefits such as corporate tax reductions.
Nongshim has argued that it was not responsible for submitting the required materials because the official notification confirming the same person (controlling shareholder) had not yet been received. However, the FTC determined that the omission was intentional. The FTC stated, "Given that this act significantly undermined the purpose and foundation of policies to curb economic concentration, the seriousness of this legal violation is considerable."
The FTC added, "This measure is significant in that it confirms the responsibility of the same person and related parties to submit data on the status of business groups under Article 31, Paragraph 4 of the law, even before the FTC’s official notification confirming the same person."
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