The Foreseen 'No Charges' for Hanwha Group... Stepping into the Market Wearing a 'Sandbag'

Did the Fair Trade Commission Target Hanwha as the Company to Punish... Five Years Later, Only Frustration Remains

Not a One-Time Incident, But a Total of 10 Investigations and 44 Days of On-Site Inspections as Indiscriminate Pressure

Hyundai Mobis, SPC, Hyundai Heavy Industries Also Left Disheartened... No Compensation for Damages

[Asia Economy Reporters Park Soyeon, Joo Sangdon] The Fair Trade Commission's (FTC) five-year investigation into Hanwha Group's 'preferential treatment of orders' ended with a no-charge conclusion, putting the FTC's repetitive investigation practices under scrutiny. Criticism is rising that the FTC, instead of initiating investigations based on reasonable suspicion, is following public opinion or 'targeting' companies to punish, thereby increasing corporate burdens amid difficult economic conditions.

◇ Hanwha's 'No Charge' Was Foreseen from the Start... 'Sandbag' for Companies = The FTC had been investigating since 2015, suspecting that Hanwha Group affiliates gave preferential treatment and profits to Hanwha S&C by entrusting it with IT system management and other services under favorable conditions compared to other businesses. The FTC alleged that Hanwha S&C set excessive prices compared to normal transactions when signing system integration service contracts with affiliates. From the beginning, industry and legal circles predicted that it would be difficult for the FTC to prove the charges. To determine whether unfair profits were accrued, it is necessary to calculate the cost (normal price) that Hanwha affiliates would have paid if internal transactions had not occurred. However, due to the customized nature of IT services tailored to each client, there is no uniform price. As expected by the market, the FTC failed to prove the usual transaction practices in the IT service market and the involvement of the controlling family.

After five years of investigation, only the workload and frustration of both the FTC and the business community remain. During the five years of investigation, Hanwha Group had to compete in the market while carrying a 'sandbag.' In 2018, the Corporate Group Bureau sent staff to Hanwha's headquarters building in Janggyo-dong, Jung-gu, Seoul, to conduct on-site inspections of six companies: Hanwha, Hanwha S&C, H Solution, Hanwha Construction, Hanwha Energy, and Bell Information. The investigation was not a one-time event; Hanwha Group underwent a total of 10 on-site inspections lasting 44 days. The questioning and document submissions continued endlessly to the point where it was said there was no document inside Hanwha Group that was not submitted. Inside Hanwha Group, there are opinions that to avoid external suspicion and because the investigation is difficult, risk management organizations should be further strengthened. However, from the company's perspective, even if the FTC ultimately concludes no charges, the damages suffered during the investigation process are not compensated.

◇ 'Economic Prosecutor' FTC's Excessive Investigations... Companies Left Disheartened = Recently, criticism has intensified among government relations officers in charge of the FTC that the commission is pushing through excessive investigations. This is because there are many cases where investigations ended with no charges after long periods. Hyundai Mobis and former executives were reported to the prosecution for allegedly forcing dealerships to purchase parts but were ultimately cleared. Lee Hae-jin, founder of Naver and Global Investment Officer (GIO), was also reported for false reporting by affiliates but was cleared due to insufficient evidence.

The problem is that once the FTC's investigation begins, companies must silently endure even if they believe they are innocent. They have to hire lawyers at high fees, and the controlling family inevitably adopts a more conservative management approach. Since it is unclear where the FTC's next target will be, companies once sued are stigmatized as 'malicious companies.' Hanwha Group only issued a brief statement regarding this investigation, saying, "We respect the FTC's decision."

The business community criticizes the FTC for indiscriminately pressuring companies using its exclusive right to prosecute to boost its performance. The sharp decline in the prosecution rate of FTC-referred cases over the past five years supports this criticism. According to the National Assembly's Political Affairs Committee, the prosecution rate for FTC referrals was 70% in 2016 but dropped to 59% in 2017, 42% in 2018, and 31% in 2019. Besides Hanwha, recently, SPC Group Chairman Heo Young-in was reported to the prosecution by the FTC for allegations related to SPC Samlim. Other companies such as LG Uplus, Hyundai Heavy Industries, Hite Jinro, Kumho Asiana, and Harim Group have also recently faced FTC sanctions or investigations.

An official from an economic organization said, "In the Hanwha case, the FTC lost because it applied logic not included in the existing unfair internal transaction guidelines," adding, "There is a concerning move by the FTC to revise the guidelines that were broken this time."

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