Improper Support by Group Affiliates

The Fair Trade Commission (FTC) imposed on a fine of 3.5 billion won on the companies under the Lotte Group, Kumho Asiana Group, Dongwon Group, and Daesung Group for improperly supporting their affiliates.

The companies had either lent money to their affiliates at lower interest rates or sold an operational division at a cheap price.

The Kumho Asiana Group and Dongwon Group must pay an additional fine of 1.2 billion won for not maintaining the obligation of public notification of internal transactions between the affiliates which are above the fixed amount (over 10 percent of assets or over 10 billion won).

On Wednesday, the FTC stated that it imposed a fine of 3.56 billion won, including the rectification order, to Lotte Group, Kumho Asiana Group, Dongwon Group, and Daesung Group for improperly supporting its 11 affiliates.

The exact amount of fine imposition for each group is: 1.95 billion won for Kumho Asiana Group, 1.11 billion won for Lotte Group, 260 million won for Dongwon Group, and 240 million won for Daesung Group.

According to the FTC, in the case of Lotte Group, as Lotte Shopping Co. sold the department store gift certificates through lotte.com on commission, it has been paying a fee of 10 percent, higher compared to the rate charged by other consignment providers (3∼7 percent).

Also, the Lotte Shopping Co. sold its packing branch, which has been recording surpluses for three consecutive years, to its affiliate Lotte Aluminium Co., only receiving the net assets amount (assets – liabilities).

Kumho Industrial Co. and Asiana Cargo, under Kumho Asiana Group, have lent a total of 148 billion won to Kumho Life Insurance at a low interest rate from June 2000 until October 2002.

Kumho Industrial Co. and Asiana Cargo also bought subordinated bonds issued by Kumho Investment Bank at a low interest rate. Furthermore, Asiana Cargo became a voucher for Asiana CC to borrow at a low interest rate.

Dongwon Securities under Dongwon Group bought 50 billion won of priced corporate credit bills issued by Dongwon Capital Co. over a series of 12 occasions starting in December 2002 until January 2004.

Also, the Dongwon Securities has leased an office building at a low price from Dongwon Investment Trust Management.

Daegu City Gas under Daesung Group became a voucher, providing its fixed deposit of 17 billion won as collateral in order to help Gyeonggi Korean Cable TV, which was under the same group last March, borrow 17 billion won at a lower interest rate.

Chi-Young Shin higgledy@donga.com