[Focus] Chaebols charged for internal dealings

The Fair Trade Commission (FTC) has charged the nation's four leading business groups at the Prosecutor's Office for irregular transactions among affiliates. The reason that the FTC has taken such a tough measure is that the internal transactions are being done in a more and more tactical way.

Also, it was disclosed that the four chaebol groups have illegal affiliates and that they are continuously expanding businesses by adding new subsidiaries. Chaebol owners and their families acquired stocks of unlisted companies and have earned profits through trading of their stocks.

By utilizing the existing regulation that does not trace the share prices of stocks prior to listing in the Korea Stock Exchange, chaebol owners and their families purchased the stocks at low prices. The FTC found four illegal transactions worth 126.6 billion won, which was nearly triple the level in the first three investigations.

LG Group distributed stocks to the group owner and his families at very low prices through LG Chemical and LG Telecom, allowing them to make more than 14.6 billion won in profit. LG Chemical sold 27.44 million shares of LG Petrochemical to chairman Koo, his brothers and families and let them earn 11.34 billion won of capital gains in June 1999. LG Telecom also sold 188,000 shares of the company to Koo Bon-Jin and other family members at one-third the normal price and helped them to make an undue profit of 3.26 billion won.

Hyundai Group offered 1.77 million shares of Hyundai Logistics to Hyundai Asan chairman Chung Mong-Hun, helping him make 6.38 billion won in profit.

Unlike before, the groups utilized overseas financial institutions and other financial institutions affiliated with their group. Hyundai's case concerning foreign capital inducement involves Canadian Imperial Bank Corp.

SK Global, Sheraton Walker-Hill and other SK Group companies have made a deposit of 861.4 billion won in Central Banking and five other merchant banks. Instead, the merchant banks purchased corporate bonds issued by SK's other affiliates at lower than market interest rates.

Also, Samsung Card and Samsung Capital paid more than the market price when they purchased 12.5 million shares of Samsung Motors in September last year in order to help the ailing auto maker.

The FTC also found eight affiliates that chaebol groups had concealed. Samsung had three information technology (IT) venture companies as unofficial subsidiaries, while Hyundai had KM Music, Korea Music Broadcasting as such subsidiaries. LG and SK also had LG-IBM and Interbest as their unofficial subsidiaries.

Choi Young-Hae moneychoi@donga.com