HDC Sanctioned by Fair Trade Commission for 17 Years of Unfair Support to I'Park Mall via Sham Lease Transaction... 17.13 Billion Won Fine

An "Interest-Free Lease" in Name Only, with an Average Annual Return of Just 0.3%
45.8 Billion Won Saved in Interest Over 17 Years

HDC has been sanctioned by the Fair Trade Commission for effectively providing free financial support to an ailing affiliate for over 17 years under the guise of a lease transaction.

On April 8, the Fair Trade Commission announced that it had decided to impose corrective orders and a fine of 17.13 billion won on HDC, which provided funds to its affiliate HDC I’Park Mall (I’Park Mall) under the pretense of a lease deposit. The commission also decided to refer the corporation to the prosecution.

"Lease or Lending?"... 17 Years of Illicit Financial Support

I’Park Mall faced a severe management crisis after it began operating the privately funded Yongsan Station in 2004, falling into a state of complete capital erosion by 2005 due to the lack of a developed commercial district. To support I’Park Mall’s business restructuring, HDC entered into a contract in March 2006 to lease a portion of the mall’s space for a deposit of 36 billion won.

In reality, however, this was nothing short of “interest-free lending disguised as a lease transaction.” HDC delegated the management rights of the leased stores back to I’Park Mall (subleasing) and was supposed to share in the operating profits. However, from 2006 to 2020, the average annual income HDC received amounted to only 105 million won, which translates to an interest rate of just 0.3%. The Fair Trade Commission determined that this constituted “an effective interest-free loan, where funds were provided under the guise of a lease deposit and I’Park Mall paid interest nominally as profit from use.”

The companies’ indirect support also sought to evade scrutiny from the National Tax Service. In 2018, when the National Tax Service deemed the transaction “indirect lending” and imposed taxes, HDC only changed the structure to a formal “loan agreement” in 2020. However, even after this change, HDC continued to provide low-interest, unsecured support until July 2023.

According to the Fair Trade Commission’s analysis, I’Park Mall used between 33 billion and 36 billion won over more than 17 years, saving a total of 45.8 billion won in interest costs. Thanks to this support, I’Park Mall managed to return to profitability in 2014, avoiding the risk of being forced out of the market, and has since solidified its position as a major player in the complex shopping mall market.

"Insufficient Evidence of Owner Involvement"... No Charges Against Owner’s Family

The latest sanctions do not include personal charges against Monggyu Chung, Chairman of HDC Group, or other individuals. Lee Soonmi, Standing Commissioner of the Fair Trade Commission, stated, “Although we found internal documents reviewing the possibility of unfair support, we could not secure evidence that Chairman Chung personally participated in the decision-making process or clearly recognized the illegality.” However, the commission imposed the maximum legal fine on the corporation and proceeded with criminal charges.

Meanwhile, HDC expressed strong regret over the Fair Trade Commission’s decision and immediately issued a rebuttal. An HDC representative stated, “The contract in 2006 was a normal lease transaction made under the same conditions as other section owners to revitalize Yongsan Station. We participated in the project not for economic gain, but to fulfill our responsibilities for mutual prosperity, revitalization of the commercial district, protection of small businesses, and regional economic development, thereby resolving vacancy issues.” The representative added, “We will prove through legal procedures that the transaction in question was normal and legitimate.”

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