FTC extends power to audit accounts

The announcement by the Fair Trade Commission that it will extend its jurisdiction for searches of corporate financial accounts by three years is received as bad news by business circles.

The FTC announced that chaebol groups are continuing to be involved in unfair transactions among their affiliates and that it is rather natural to extend the period for further investigation. However, industrialists protest against such an announcement, saying that FTC is tackling companies at a time when they are suffering from slow business.

The license to search corporate financial accounts is a system that the FTC introduced temporarily for chaebol reform. Former FTC head Jeon Yun-Churl introduced it in February 1999 to implement for two years to root out the irregular internal transactions within chaebol groups. It was due to end in February 2001, but the FTC has agreed with the ruling party to sustain the system for three more years.

In addition, the FTC was allowed to use the audit power in case a chaebol group is suspected of having an illegal subsidiary.

The business circle complains that the FTC's powerful authority could weaken corporate activities, although they agree on its intention to monitor internal transactions of corporations. An executive of a large company said that the FTC officials are more pressing than prosecutors or officers of the National Tax Administration.

Businesses point out that the second phase of corporate management reform is to be applied starting next year, along with restructuring of the boards of directors.

However, FTC officials say that they cannot pursue corporate reform without stamping out the unfair transactions in chaebols, adding that clean companies do not have to worry about it.

The FTC's Joo Soon-Shik said that chaebols¡¯ irregular internal transactions still exist, noting that FTC officials cannot investigate without having the power to search financial accounts. He stressed that it is necessary to extend the period for its implementation.

Joo said that chaebols tend to support their illegal subsidiaries or offer financial aid to insolvent companies by establishing offshore funds that do not exist.

From now on, the FTC will raise the penalty imposed on company officials who hamper investigations to 100 million won from the previous 10 million won.

Choi Young-Hae moneychoi@donga.com