[Exclusive] Only Four Fines for Collusion in 10 Years... The Temptation of Cartels [The Architects]③

How Collusion Has Undermined the Lives of Ordinary Citizens

A Decade of Fines for Price-Fixing in the Food Industry

Illicit Gains That Exceed the Fines

Leniency Program Exploited as a Loophole for Reduced Penalties

Editor's Note
The "white powder," classified as a premium product by its lighter color, was called "Jingaru" during the Joseon Dynasty and was regarded as a rare delicacy. After the Korean War, flour began to be imported in large quantities as aid goods, filling the stomachs of people living on the devastated Korean Peninsula. Flour has since become a staple in Korean households, forming the basis for essential foods such as noodles, ramen, bread, and snacks. As a key raw material in the food industry, any rise in flour prices has triggered not only increases in the prices of flour-based foods, but also in overall food and dining costs, thereby burdening household expenses for ordinary people. The Asia Business Daily, based on the indictment in the flour price-fixing case by prosecutors, has reconstructed the 6 trillion won "flour price cartel" scheme and analyzed how this cartel has made life more difficult for average citizens over the past six years.

Over the past 10 years, there have been only four cases in which the Korea Fair Trade Commission imposed fines for food price-fixing. Of these, three were repeated chicken price-fixing schemes involving the Harim Group. Amid recent price-fixing scandals involving sugar and flour worth tens of trillions of won, and new suspicions of a starch syrup cartel exceeding 6 trillion won, the persistent collusion among food companies remains a concern. Critics point out that the illegitimate profits gained from collusion are often greater than the fines imposed, which further incentivizes price-fixing.

According to the Fair Trade Commission's data on fines imposed on food companies, obtained by The Asia Business Daily on March 12 from the office of Assemblyman Kim Seungwon of the Democratic Party, a total of 754 billion won in fines has been imposed on 82 companies between 2017 and January of this year for violations such as breaches of the Monopoly Regulation and Fair Trade Act. Of these, there were four cases of collusion (involving 26 companies): three cases were chicken price-fixing, including a case in May 2022 where 16 poultry companies were fined about 170 billion won for colluding on chicken prices. The remaining case involved ice cream price-fixing. The statistics exclude companies fined 408.3 billion won last month for sugar price-fixing, such as CJ CheilJedang, Samyang Corporation, and Daehan Sugar.

Only Four Food Company Cartel Cases in 10 Years... 754 Billion Won in Fines

In February 2022, the Fair Trade Commission imposed fines totaling 135 billion won on five ice cream companies, including Binggrae, which accounted for about 85% of the market. The commission noted that the revenue generated from this collusion reached approximately 3.3 trillion won.

In particular, Harim, which is vertically integrated from chicken production to sales, colluded with three breeding chicken suppliers to reduce the supply of breeding chickens, thereby raising chicken prices. In 2019, this led to fines of 18 million won. In May 2022, 16 companies selling fresh chicken meat used in products such as fried chicken and chicken stew were caught colluding and fined 175.8 billion won. Four of these were Harim Group affiliates, including Harim, Harim Holdings, Hangang Food, and Orpum. Harim and Orpum also colluded on native chicken prices in June of the same year, and six companies were fined a total of 1.59 billion won.

Harim, which leads the chicken market, along with its affiliates Orpum and Hangang Food, together hold a market share close to 30%. Over the past 10 years, Harim Group's chicken-related affiliates have been fined 92.6 billion won for collusion, accounting for about one third of the total 300 billion won in cartel fines. Notably, in the broiler chicken collusion cases involving Harim and Orpum, there were 45 instances of price increases over 12 years from 2005 to 2017. According to the Fair Trade Commission, these 16 companies used a wide range of collusive tactics, including adjusting shipment and production volumes.

Even in the recent flour price-fixing case, which the Fair Trade Commission has begun investigating, history shows that the "Sampun" (sugar, flour, and cement) cartel of 1963 involved 10 flour manufacturers raising flour prices up to three times the official price, reaping over 10 billion won in excess profits. In 2006, seven flour manufacturers, including Daehan Flour Mills, Donga Flour Mills, and Korea Flour Mills, were also found to have colluded.

Repeating 'Vicious Cycle'... Lax Leniency Program

The reason food price collusion continues to recur is that companies discuss and execute collusion in secrecy, making detection difficult. Even if such collusion persists for long periods, it is hard to detect and confirm through on-site investigations. A Fair Trade Commission official stated, "The commission is investigating collusion in all areas where fines can be imposed," but added, "Colluding companies often form tight bonds, going so far as to expel whistleblowers from the industry, which makes collusion even more secretive."

For this reason, the commission has tried to detect collusion through the leniency program (self-reporting reduction system), but the program is so loosely administered that it encourages habitual collusion. The leniency program allows a company participating in a cartel to receive immunity or a reduction in fines if it voluntarily reports the collusion to the commission. The first company to report receives a 100% exemption from fines and criminal penalties, while the second receives a 50% reduction.

According to the Board of Audit and Inspection, over the past three years (2022–2024), the commission imposed 1.3029 trillion won in fines for 144 cartel cases, but applied the leniency program to 98 of these cases, reducing fines by 258.3 billion won. In some cases, newly established or spun-off corporations were still granted leniency for repeated violations, simply because they had no prior record of paying fines. The Board of Audit and Inspection also found cases where whistleblower reports under the reward system were not presented to the commission, resulting in self-reported companies being granted leniency despite violations being previously reported.

Another problem is that companies engaging in cartels use the leniency program to avoid fines and reap huge profits, evading penalties through such "loopholes." Since the level of penalty reduction depends on the order in which companies report to the commission or prosecutors, it is sometimes ambiguous which company should be granted the greatest reduction if the reporting order differs. Currently, leniency applications can be filed with both the commission and the prosecutors.

Fines Lower Than Cartel Profits... Need for Tougher Penalties on Participants

There has been persistent criticism that the current fine system does not exceed the illicit profits from price-fixing. Because companies see cartels as profitable, collusion continues to occur.

Under the current Monopoly Regulation and Fair Trade Act, a business with market dominance (monopoly or oligopoly) that disrupts market order can be fined up to 0.6% of revenue, or up to 2 billion won if revenue is difficult to determine. For cartel cases, fines can reach up to 20% of revenue, or up to 4 billion won if revenue cannot be calculated.

Recently, the commission has unveiled measures to impose fines of over 10% of related revenue in the wake of successive cartels involving sugar and flour. For serious cartels, fines will be raised to 15–18% of revenue, and for extremely serious cartels, up to 18–20%. Repeat offenses will result in heavier fines. Any company ordered to pay a fine for even one violation in the past 10 years will see its fine doubled.

Legislative changes are also underway. Assemblyman Kim last month proposed an amendment to the Fair Trade Act to raise the maximum fine for abuse of market dominance from 6% to 20% of revenue, and for cartels from 20% to 30%. Assemblyman Kim stated, "While companies reap unfair profits through collusion, the burden is passed on entirely to ordinary citizens. We must quickly pass the bill to increase fines in the National Assembly to block companies from even considering price-fixing in the first place."

There are also calls for tougher penalties for cartel participants. In an unusual move, prosecutors, in indicting those involved in the flour price-fixing case, emphasized the need for stronger penalties for the "actors" who actually carry out the collusion. They argue that the repetition of price-fixing stems from the leniency of penalties imposed on actual perpetrators. Under the current law, only corporations can be subject to corrective measures or fines for cartels, while individuals directly involved can only be sentenced to up to three years in prison or fined up to 200 million won.

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