FTC Says Unfair Support Provided to Samsung Welstory
The Fair Trade Commission (FTC) has decided to impose a total of 234.9 billion won in fines on five Samsung Group companies for making sweetheart deals with Samsung Welstory, a food service affiliate. It also filed a complaint with the prosecution against Samsung Electronics and Choi Ji-sung, former head of Samsung Group's Future Strategy Office.
The FTC announced on June 24 that it has decided to impose such sanctions on Samsung Electronics, Samsung Display, Samsung Electro-Mechanics and Samsung SDI for providing unfair support to Samsung Welstory. The FTC believes that Samsung Group's Future Strategy Office led the four electronics companies to give unduly favorable meal service contracts to Samsung Welstory, helping the food service affiliate make huge profits.
However, the FTC did not acknowledge the allegation that the unfair support for Samsung Welstory was directly related to the management succession scheme for Samsung Electronics vice chairman Lee Jae-yong. Samsung Electronics and its three affiliates refuted the FTC’s decision, saying that their deals with Samsung Welstory were intended to promote the welfare of its employees. They are expected to start a fierce legal battle with the FTC.
The amount of the fines imposed on the five companies including Samsung Electronics is the largest since the FTC began to punish sweetheart deals among affiliates of chaebol groups. The amount of the fine imposed on Samsung Electronics is the highest-ever for a single Korean company.
According to the FTC's investigation, four companies, including Samsung Electronics, gave all of their meal service orders to Samsung Welstory on a private contract basis from April 2013 to early this month. The scheme helped Samsung Welstory maintain high profits by guaranteeing high margins and providing generous commissions.
Through the nine years of such unfair support, Samsung Welstory posted an average profit rate of 25.27 percent on food service sales to the four companies and an operating margin of 15.5 percent, significantly higher compared to the average operating profit ratio (3.1 percent) of the top 11 competitors in the food service industry during the same period.
Above all, Samsung Welstory played a key role as a cash cow for the Samsung Group owner's family based on stable profits from internal trade in meal services for employees of Samsung Group, the FTC said.
Accordingly, the FTC has judged that Samsung C&T received a large portion of Samsung Welstory's net profit (275.8 billion won in total) as dividends during the period from 2015 to 2019. The Samsung Group owner family is the largest shareholder of Samsung C&T.