Thursday, April 9, 2020
FTC Set to File Complaints with Prosecution against Heads of Harim and Daelim Groups
On Charges of Enriching Themselves at the Expense of Group Firms
FTC Set to File Complaints with Prosecution against Heads of Harim and Daelim Groups
  • By Michael Herh
  • December 13, 2018, 18:45
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Harim Group chairman Kim Hong-kuk
Daelim Group vice chairman Lee Hae-wook

The Fair Trade Commission (FTC) has recently submitted a proposal to the commission’s plenary session to file complaints with the prosecution against Kim Hong-gook, chairman of the Harim Group, and Lee Hae-wook, vice chairman of the Daelim Group, on charges of enriching themselves through unjustified deals among group affiliates.

The commission has already referred Kumho Asiana Group chairman Park Sam-gu and Taekwang Group chairman Lee Ho-jin to the prosecution on the same charges.

The commission has sent the findings of its investigation to the Harim and Daelim groups and is waiting for them to present clarification reports before holding a plenary session in January next year.

If the two groups fail to clarify the allegations against their chairmen, the commission will refer them to the prosecution for investigation and impose sanctions on the groups.

In addition to the four groups, the commission is also investigating the owner family members of the Samsung, SK, Hanjin, Hanwha, Amorepacific and Mirae Asset groups for earning undue personal gains through illegal deals among group companies.

For Harim, the country’s largest poultry processor, the commission launched a probe in July last year, suspecting irregularities in the way chairman Kim Hong-kuk transferred the company’s managerial control to his son.

Kim transferred his 100 percent stake in Orpum, a non-listed company that was at the apex of the group’s governance structure, to his son, Kim Jun-young, in 2012. The 25-year-old heir paid just 10 billion won in inheritance taxes for the stake transfer, which put him in control of the group with assets around 10 trillion won.

Following the stake transfer, annual sales of Orpum and its subsidiary Korea Thumbvet Co. grew from the 70 billion won range to 300 billion won to 400 billion won. The FTC suspects that chairman Kim arranged a set of illegal deals among group subsidiaries to inflate the sales of the two unlisted companies and allow his son to enrich himself.

Harim was the first chaebol group to be investigated by the FTC since the inauguration of its chairman Kim Sang-jo.

The FTC believes that the group’s vertical integration from poultry feed supply to processing to distribution may facilitate inter-subsidiary sweetheart deals that stifle market competition.

Meanwhile, the Daelim Group is suspected of illegally supporting Daelim Corporation, A Plus D, and Kemtech, companies where the group’s owner family members have more than a 50 percent stake.

Following an on-site investigation by the commission in September last year, the Daelim Group announced a plan to revamp its corporate governance structure. The plan included disposal of group vice chairman Lee’s stake in A Plus D and liquidation of circular equity investments among group affiliates.

Nevertheless, the FTC is pushing to refer Lee to the prosecution for investigation as it suspects that the vice chairman is still involved in earning undue personal gains from his control of the group’s non-listed units.

Lee took control of the Daelim Group through the merger of Daelim Corp., the group’s holding company, and Daelim I&S, an information service company where he held a 89.69 percent stake, in 2015.

The merger boosted Lee’s stake in Daelim Corp. from 32.1 percent to 52.3 percent in excess of the 42.7 percent stake held by his father and group honorary chairman Lee Joon-yong, allowing the junior Lee to take control of the group without paying inheritance taxes.