Corporate investigations have side effects

An official at Kukje Group's financial team was investigated by officials of the Office of National Tax Administration, the Fair Trade Commission and the Financial Supervisory Service for 64 days last year. He worries that this year's investigation will last longer.

Once the investigation begins, the officials are required to focus on providing materials requested by the government offices.

Last year's official investigation lasted two months, but company officials had to spend more than 120 days for preparations and follow-up measures. "As we had to spend nearly one-third of our yearly work hours on the investigation, we cannot focus on our own work for obtaining funds and operation," the Kukje official said. "We even considered to have a separate department to handle government investigation."

Recently, the government expanded its investigation on corporations, thus weakening the investment confidence in corporations. This year, corporate investigations by the government are focusing on the second half.

The ONTA has begun investigating four major business groups, including Samsung and Hyundai, for corporate tax and transfer of stocks. The FTC has been investigating unfair internal transactions among chaebol groups since August. The FSS has been investigating financial institutions affiliated with chaebol groups since September.

What chaebols worry about the most is each government office is investigating more or less the same thing. One executive said that he could not understand why the ONTA and FTC were repeatedly investigating the same thing over and over again, noting that it can be avoided if they shared information they had obtained among them.

"The executives who are placed to support the investigation are key members of a company, so they are cannot work properly at a time when corporate competition is toughening," said another company official.

For investigation of a group that is being investigated for internal stock trading, the ONTA and FTC showed different positions on the purchasing price of stocks that the company's affiliate had bought from its leading shareholder. Some even criticize that it doesn't fit in an era of electronic government to make hundreds of copies of materials to submit to various government offices at the same time.

Corporate executives contend that several government offices investigating the same thing at the same time will discourage corporate activities, although there should be strict investigation and punishment if companies have violated laws through irregular internal transactions.

A researcher at the Federation of Korean Industries said that the relevant government offices must be more careful in announcing the list of companies and their charges before investigations because that would downgrade corporate creditworthiness and even affect introduction of foreign capital, as probes are announced in the market.

Park Won-Jae parkwj@donga.com