Fair Trade Commission Begins Review of Hanwha's 'Ilgam Molajugi' Sanctions

[Asia Economy Reporter Park So-yeon, Sejong=Reporter Moon Chae-seok] The Korea Fair Trade Commission (KFTC) has initiated a disciplinary review procedure related to the Hanwha Group's controlling family’s alleged 'preferential allocation of work.' This comes about three years after the KFTC began an on-site investigation in 2017. Hanwha has rebutted, claiming that the KFTC is applying unreasonable standards.

According to industry sources on the 19th, the KFTC recently sent a review report, equivalent to a prosecution indictment, to Hanwha Group, which is suspected of channeling work to Hanwha S&C through affiliated companies. Hanwha S&C was a company in which the three sons of Hanwha Chairman Kim Seung-yeon (Kim Dong-kwan 50%, Kim Dong-won 25%, Kim Dong-sun 25%) held substantial shares, and it merged into Hanwha Systems in 2018.

The KFTC has conducted a long-term investigation, concluding that Hanwha Group affiliates assigned tasks such as IT system management to Hanwha S&C under more favorable conditions than other businesses, thereby channeling work and profits. In 2018, the KFTC also conducted on-site investigations on six companies: Hanwha S&C, H Solution, Hanwha, Hanwha Construction, Hanwha Energy, and Bell Information.

Under Article 23-2 of the Fair Trade Act, companies with assets exceeding 5 trillion won are prohibited from providing unfair benefits to controlling family members. The KFTC judged the Hanwha case as a 'transaction under conditions significantly more favorable than normal' or 'transactions of considerable scale without reasonable consideration or comparison with other businesses.'

However, since large corporations may increase internal transactions for business synergy through vertical integration, a high proportion of internal transactions alone does not warrant sanctions. Sanctions are imposed if transactions occur at excessively high prices compared to market prices, resulting in unfair gains for the controlling family.

The KFTC Secretariat expressed the opinion that, regarding this case, a corporate indictment is necessary without individual accusations against the Hanwha Group controlling family. This is also interpreted as evidence that the KFTC has not secured proof of deep involvement by the controlling family. Experts believe that sanctions will be difficult to impose in reality. The KFTC plans to decide on the imposition and level of sanctions after hearing explanations from Hanwha Group affiliates at a plenary meeting.

A Hanwha Group official stated, "After sending the review report, there is a process of receiving Hanwha’s explanatory opinion, and even after that, there remains a sharp dispute over points of contention such as the plenary meeting," adding, "Currently, the KFTC recognizes many discrepancies between the facts and the investigation content regarding the issue it views as preferential allocation of work, so we plan to faithfully explain based on the facts in the future."

This content was produced with the assistance of AI translation services.