The government has imposed sanctions on Lotte Group founder Shin Kyuk-ho, who reported incomplete or false information over his ownership of Lotte’s overseas subsidiaries, and Lotte’s 11 domestic subsidiaries, which reported and announced false information over the major stakeholders, on suspicion of violating the fair trade law.
The Fair Trade Commission (FTC) released “Lotte’s current status of shareholdings in its overseas affiliates” report on February 1 and said, “We will consider whether to take action based on differences between data in regulatory filings submitted by Lotte last year, and our investigation results.”
The 11 affiliates include Lotte Food, Lotte Chemical, Lotte Capital, Lotte Engineering & Construction, Lotte Aluminum, Lotte Corporation, Lotteria, Lotte Hotel Busan, Lotte Data Communication and Lotte Logistics as well as Hotel Lotte, the de facto holding company of its Korean arm.
According to the FTC, Lotte general chairman Shin and 11 subsidiaries provided the wrong information about the stake of its founder and his or her family members in the company's affiliates at home and abroad to the FTC from 2012 until recently.
Under the Fair Trade Act, a company with assets worth 5 trillion won (US$4.16 billion) is required to details of their ownership structure as well as the owner family stakes. When a company violates the rule, it faces a fine of up to 100 million won (US$83,160).
Lotte provided the wrong information to the FTC saying that 16 Japanese affiliates, including Kojunsha, Lotte Holdings, L Investment Company and Family Corporation that controls 11 local subsidiaries, had nothing to do with Shin's family. In that way, the Lotte Group ownership rate of Shin's family can be reduced by 22.7 percent point from 85.6 percent to 62.9 percent.
The FTC believes that Lotte reported false information for its corporate image, rather than monetary gains. It seems that the owner’s family, including general chairman Shin, was reluctant to share information that Lotte controls domestic subsidiaries through its Japanese subsidiaries.
The fact that most shares in Lotte’s domestic affiliates are owned by its Japanese affiliates means that same amount of dividends goes to Japan. This is why Lotte Group concerned about its image that Lotte is a Japanese company.