Umi Hit with Heavy Fine for Unfair Profits Gained by Second-Generation Heirs Through Affiliate Swarm Bidding

Fair Trade Commission Refers Umi Construction to Prosecution
Unfair Support of 499.7 Billion Won Provided to Five Affiliates

Umi, which provided 500 billion won (approximately 500 billion KRW) in unfair benefits to five affiliates-including companies owned by the second generation of the owner family-in order to secure first-priority bidding rights for public land development projects by Korea Land & Housing Corporation (LH), will face sanctions from the Fair Trade Commission.

On November 17, the Fair Trade Commission announced that it would impose a fine of 48.379 billion won on Umi Construction for violating the Monopoly Regulation and Fair Trade Act (Fair Trade Act). The Commission also stated that it had referred the Umi Construction corporation to the prosecution.

According to the Fair Trade Commission, since 2017, Umi selected affiliates with no prior experience in housing construction as non-lead contractors at 12 apartment construction sites it was developing, allocating a total of 499.7 billion won in project volume to these affiliates.

Since the 2010s, Umi has secured public land by employing so-called "swarm bidding" tactics-using multiple affiliates to submit bids in a way that increases the likelihood of winning contracts.

In 2016, Korea Land & Housing Corporation (LH) strengthened the requirements for first-priority bidding on public land by adding a "housing construction record of 300 units" as a new criterion.

Even after the policy change, Umi continued to have its affiliates participate in bids by appointing affiliates without housing construction records as non-lead contractors at 12 apartment construction sites developed by Umi companies since 2017, thereby providing them with construction contracts.

This unfair support was planned and implemented at the group level. The group headquarters selected the affiliate that would pay the least taxes among those needing construction records, regardless of the company’s actual capabilities.

Despite lacking a construction business license, these affiliates were selected as contractors, and employees from other affiliates were dispatched to enable them to carry out the projects. During the support period, over half of the newly hired staff at the supported affiliates were actually personnel transferred from other affiliates.

As a result, the five affiliates-Umi Estate, Myungga Industrial Development (now Umi Development), Simwoo General Construction, Myungsang Construction, and Daan Construction (now Umi Global)-secured nearly 500 billion won in construction revenue. All grew into mid-sized construction companies with annual sales exceeding 50 billion won, and their construction capability evaluations also increased significantly.

Ultimately, as intended by the headquarters, all of these affiliates obtained first-priority bidding rights for public land and participated unfairly in 275 public land bids. As a result, they won two sites in 2020-Gunsan (Umi Estate) and Yangsan Sasong (Simwoo General Construction)-securing 726.8 billion won in revenue and 129 billion won in gross profit, according to the investigation.

Among the supported affiliates, Umi Estate was established in 2017 by Seunghoon and Seunghyun, the children of Vice Chairman Lee Seokjun, with a capital of 1 billion won.

The two second-generation heirs sold the company, which had grown through 88 billion won in project support from headquarters, to Umi Development for 12.7 billion won. In the end, they earned a capital gain of 11.7 billion won in just five years.

As of 2023, Umi’s total assets amounted to 4.7 trillion won, which does not meet the 5 trillion won threshold for designation as a large business group subject to public disclosure. Therefore, the owner family was not sanctioned for private interest appropriation.

Choi, Director General of the Corporate Group Supervision Bureau at the Fair Trade Commission, stated, "With this action, we hope that unfair practices by some construction companies to strengthen their positions in the housing construction market-which is closely linked to public housing stability-will be eradicated and a fair trade order will be established."

He added, "In particular, we hope that the practice of artificially fulfilling public land bidding requirements for affiliates to enable them to participate in 'swarm bidding' through expedient means will be eliminated, so that public land is supplied to businesses with genuine capabilities, thereby establishing a fair trade order."

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