No Receipt Certificates Issued After Deliveries
Suppliers Left Uninformed of Inspection Results and Approval Status
Hanon Systems, an affiliate of Hankook & Company Group and the world’s second-largest provider of automotive thermal management solutions, has been sanctioned by the Korea Fair Trade Commission (KFTC) for engaging in unfair practices against small mold manufacturers, including the failure to issue written contracts and delayed payment of fees.
On March 2, the KFTC announced that Hanon Systems had violated the Act on the Fair Subcontract Transactions by subcontracting mold manufacturing for automotive air conditioning systems to nine suppliers over a three-year period from May 2020 to May 2023. The commission has decided to impose a corrective order and a fine of 1,407 million won.
According to the investigation, Hanon Systems issued incomplete documents missing the signatures or seals of both parties in 531 out of a total of 1,236 transactions. More notably, for the remaining 705 cases, the company did not issue any documentation at all, merely instructing suppliers verbally under the pretext of “modifying existing molds.” This is a direct violation of the Subcontract Act, which requires that a written contract be provided to the subcontractor before work begins.
The violations regarding payment and procedural duties were even more serious. Hanon Systems did not issue a single receipt certificate for any of the 1,236 transactions, even after accepting deliveries from suppliers. Furthermore, in 1,067 cases, the company failed to notify suppliers in writing of the inspection results within 10 days of delivery, preventing them from knowing whether their products had passed in a timely manner. Financial dealings were also improper: Hanon Systems failed to pay delayed interest totaling 1,392.36 million won and bill payment substitute fees of 94.99 million won to the suppliers, instead retaining these amounts by exceeding the statutory payment deadline of 60 days.
This case is significant as it identifies and penalizes the entrenched industry practices of verbal contracts and delayed payments in the mold sector, raising awareness among primary contractors to prevent future occurrences of similar or identical violations. The KFTC has issued Hanon Systems an order to prevent recurrence and to immediately pay the outstanding interest of 1,392.36 million won and the 94.99 million won in fees to the subcontractors. In addition, a fine of 1,407 million won has been imposed.
The KFTC stated, “Going forward, we will continue to monitor unfair subcontracting practices in the mold sector, a key industry for the nation, and will take strict action if violations are found, such as delayed payment of fees owed to subcontractors.”
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