Chaebols Under Investigation Again

The six largest chaebols in Korea including Samsung, LG, SK and Hyundai will face government inspections due to suspected illegal internal transactions. They last succumbed themselves to the inspection three years ago.

The Fair Trade Committee announced yesterday that it would scrutinize 6 chaebol groups and 20 major subsidiaries for unfair internal transactions.

Subject to the scrutiny are Samsung Electronics, Samsung Everland, Samsung Life Insurance, Samsung Securities, Samsung Industries, LG Electronics, LG Chemical, LG Securities, SK Corporation, SK Telecom, SK&C, SK Life Insurance, SK Shipping, Hyundai Mobile, Hyundai Corporation, Hyundai Securities, and Hyundai Heavy Industries.

A source at the Fair Trade Committee stated that "the upcoming probe targets those companies that have engaged in illegal internal trade on a relatively large scale."

The Committee will focus on internal transactions done since early 2000 prominently favorable to their affiliates or subsidiaries. For example, the probe will target support given during the period from one subsidiary or affiliate to another, on relatively favorable terms by means of payment, loans, manpower, leasing, and purchasing.

In addition, the Committee will examine the unpublished internal transactions, which were detected during last year`s inspection, to determine whether or not they fall within the scope of internal transactions.

The Fair Trade Committee also announced that it has detected various cases of unfair inter-affiliate transactions by the six chaebol groups during last year`s annual inspection on the performance of South Korean corporations.

Fair Trade Committee chairman Chul-kyu Kang confirmed, "We understand the upcoming inspection may burden the companies temporarily. However, if we ignore illegal transactions, foreign investors will lose confidence in transparency of Korean companies. I believe inspections will enhance investor confidence and transparency in Korean companies."

The industries acknowledge the legitimacy of the inspection. They, however, out of concern over its impact on the economy, they hope that the examination will be done thoroughly and swiftly in the near future.

Kwang-Am Cheon Ki-Jeong Ko iam@donga.com koh@donga.com