Youngone Trading Group Omits 82 Affiliates to Evade Large Conglomerate Rules for 3 Years... KFTC Files Criminal Complaint Against Chairman Sung Kihak

Record-breaking scale and duration of false designation materials uncovered
Abuse of "simplified procedure"...KFTC files criminal complaint against Chairman Sung Kihak

Youngone Trading Group, widely known as the domestic operator of the global outdoor brand "The North Face," has been found to have intentionally omitted a record-high 82 affiliates over three years in order to evade designation as a large business group. During this period, it took advantage of this status to transfer holding company shares to the owner's children as part of succession planning, without making the required disclosures, thoroughly exploiting a regulatory blind spot. Sung Kihak, the group’s chairman and owner, will now face a prosecution investigation.

Sung Kihak, Chairman of Youngone Trading Group. The Asia Business Daily database.

Even his own and his daughter’s companies were left out..."High likelihood he was aware"

On the 23rd, the Korea Fair Trade Commission (KFTC) announced that it had decided to file a criminal complaint with the prosecution against Chairman Sung for submitting false designation materials from 2021 to 2023. The total number of omitted companies during this period was 82 (excluding duplicates), and their combined assets amounted to 3.24 trillion won. This is the largest case ever in which the KFTC has uncovered false submission of designation materials by the same person (owner), and it is also the longest period over which a business group subject to public disclosure (large business group) has evaded designation.

According to the KFTC, if these omitted companies had been included, Youngone Trading Group’s total assets would have exceeded 5 trillion won and it should have been designated as a large business group. However, thanks to the large-scale omissions, Youngone Trading Group was listed as a large business group for the first time only in 2024. The KFTC explained that while it is not uncommon for companies owned by distant relatives to be left out, in this case even companies 100% owned by the owner himself and companies owned by his daughters that have close business relationships with core affiliates were omitted. The KFTC determined that, given that Chairman Sung has served as the top decision-maker since the company’s founding in 1974, it is practically impossible that he did not know the scope of the group’s affiliates, and therefore the likelihood that he was aware of the omissions is very high.

By avoiding large business group designation for three years, Youngone Trading Group escaped the entire web of regulations imposed on large conglomerates, including disclosure obligations and bans on unfair private benefit. It was also revealed that the process of business succession, including the 2023 transfer of holding company shares to Vice Chairman Sung Rae-eun, the chairman’s second daughter, was not disclosed. Had the group been properly designated as a large business group, such critical facts would have had to be made public, but by omitting affiliates and thereby being excluded from designation, it effectively carried out the succession process outside the supervisory radar.

"We submitted what we were told to"...Youngone’s brazen response

The way Youngone Trading Group responded during the investigation has also come under heavy criticism. To reduce the work burden on business groups with assets approaching 5 trillion won, the KFTC operates a "simplified designation materials" format, under which it first receives only key documents such as the status of affiliates. Youngone argued that this should be taken into account, claiming in effect that "the KFTC only asked for the core materials, so our insufficient submission of data should be viewed leniently."

Eum Jandi, director of the KFTC’s Business Group Bureau, said, "This conduct distorts the purpose of the system, which was to provide convenience by simplifying the format of submissions," adding, "While other groups submitted their materials properly, only Youngone submitted information on just five affiliates for more than 10 years, effectively exploiting the system itself."

The KFTC stated that this measure is the first decision in which the same person (owner) has been criminally referred for false submissions that occurred in the course of simplified material submission by business groups with assets of less than 5 trillion won. It stressed that it views very seriously the abuse of the "simplified designation materials submission" procedure, which was introduced to ease the burden on groups with assets under 5 trillion won, and that going forward it will hold companies strictly accountable for omitting core information such as the status of affiliates, regardless of their size.

The KFTC said, "By imposing strict sanctions on conduct such as the omission of affiliates, this will serve as an opportunity to heighten awareness," and added, "We will continue our monitoring activities to ensure accurate submission of designation materials, and will respond sternly whenever illegal acts are detected."