Korea Economic Association Calls for Comprehensive Overhaul of "Same Person" System and Disclosure Standards

Same Person System Maintained for 40 Years, Shift to Corporate-Based Designation
Raise the 5 Trillion Won Asset Threshold for Disclosure-Subject Business Groups
Ease Criminal Liability for the Same Person... Administrative Fines Instead

The Korea Economic Association announced on November 18 that it had submitted a proposal to the Fair Trade Commission, outlining 24 institutional improvements and tasks that need to be implemented in the field of fair trade.

Employees of tenant companies are moving at the Korea Economic Association in Yeouido, Seoul. Photo by Jin-Hyung Kang aymsdream@

The proposal highlights four main areas: improving the regulatory framework for business groups, revising the criteria for designating business groups subject to disclosure, rationalizing the criminal penalty system, and strengthening industry-finance synergy.

First, the Association emphasized that the "same person designation system," which was introduced in the 1980s and has remained in place to this day, no longer reflects the realities of modern corporate governance. It argued that the designation of the "same person" should focus on corporations rather than individuals.

Under Korea's Fair Trade Act, a business group is defined as "the same person who in effect controls the group." The group includes affiliates controlled by the same person, either individually or together with related parties (special affiliates). The "same person" may be either an individual or a corporation.

However, as many large business groups have recently transitioned to holding company structures and management decisions are now made by corporate boards rather than individuals, there have been calls for regulatory reform. Accordingly, the Association proposed that only corporations should be designated as the "same person," and that, in the long term, the same person designation system should be phased out altogether.

The Association also pointed out that the scope of related parties (special affiliates) of the "same person" is excessively broad and could unduly expand the scope of regulation. Current regulations include blood relatives up to the fourth degree and in-laws up to the third degree, and may extend to blood relatives up to the sixth degree and in-laws up to the fourth degree depending on the circumstances. As a result, even relatives who have no actual involvement in control may be subject to regulation. The Association stressed that the scope should be narrowed to immediate family members, such as direct ascendants and descendants and spouses, in order to reduce the administrative and reporting burden on companies.

The Association also criticized the current practice of designating business groups with total assets of 5 trillion won or more as subject to disclosure, arguing that this is out of step with economic realities. The asset threshold was set in 2009 and does not reflect the expansion of the economy since then, thus losing its practical significance.

In fact, about 78% of affiliates within business groups subject to disclosure qualify as small and medium-sized enterprises based on their size, meaning that the current criteria bring under regulation many groups that have little real impact on the economy.

In particular, while the criteria for designating business groups subject to restrictions on mutual investment have been adjusted annually based on GDP since last year, the criteria for business groups subject to disclosure have remained fixed, resulting in a lack of balance between the two systems.

The Association noted that since the Fair Trade Commission announced at the beginning of this year that it would consider linking the disclosure designation criteria to GDP, it is necessary to revise the current absolute amount-based criteria to a "relative standard based on economic scale" to enhance the effectiveness of the system.

The Association also argued that the criminal penalty system should be rationalized. The Fair Trade Act allows the Fair Trade Commission to request submission of designation-related data from a company or its special affiliates, and stipulates that refusal or submission of false data is punishable by up to two years in prison or a fine of up to 150 million won.

However, in practice, the Fair Trade Commission often requests data not from the company but from the "same person" (individual), and requires confirmation and reporting of data from special affiliates that the individual may not be able to control directly. In reality, it is difficult for the "same person" to have complete knowledge of relatives' personal assets or investment details, yet the individual bears legal responsibility if any data is omitted, which can even lead to criminal penalties. This has been widely criticized as unreasonable.

Therefore, the Association proposed that simple administrative omissions or errors should be subject to administrative fines rather than criminal penalties, and that the legal responsibility for submitting designation data should be clearly assigned to the "representative corporation of the business group."

Lee Sangho, Head of the Economic and Industrial Division at the Korea Economic Association, stated, "The Fair Trade Act is a core legal framework for ensuring fairness and transparency in the market, but the system must also evolve with the times. In an environment of intensifying global competition, regulations that restrict reasonable business activities can ultimately weaken industrial competitiveness. We hope the Fair Trade Commission will improve the system in a rational manner."