"Would You Go to Jail for Your Company?"...10 Trillion Won Price-Fixing: 'Profitable Even If Caught' Era Ends [The Architects]④

Expert Recommendations to Eradicate Ongoing Food Price Collusion
Calls Grow for Stronger Criminal Penalties Against Employees Involved in Collusion
"Leniency Program Is Essential for Deterring and Detecting Collusion"

Editor's NoteThe whiter the powder, the more premium it is considered – this is "white flour." In the Joseon Dynasty, it was called "jingaru" and was highly prized. After the Korean War, flour entered the Korean Peninsula in large quantities as aid, helping to fill the stomachs of people living in the ruins. Since then, flour has become a staple in Korean households, used to make noodles, ramen, bread, snacks, and more. As a key raw material for the food industry, when flour prices rise, not only do food products made from flour become more expensive, but "grocery and dining-out prices" also climb, increasing the cost of living for ordinary people. The Asia Business Daily reconstructed the planning process behind the "flour price-fixing" scheme worth 6 trillion won based on the prosecution’s indictment, and examined how this collusion has made life harder for ordinary citizens over the past six years.

"Collusion that abuses market dominance is a cancer to the economy, blocking fair competition, undermining market trust, and hindering national economic development." (February 19, Senior Secretary Meeting)

"They say manipulating stock prices ruins your life, but collusion or monopolistic abuse is no different." (March 10, Cabinet Meeting)

As President Lee Jaemyung has been issuing strong criticism and calling for economic sanctions regarding the sugar and flour price-fixing case, which is valued at over 10 trillion won, the government has decided to significantly increase fines imposed on colluding companies. There is also discussion of raising whistleblower rewards to encourage internal reporting of collusion. Experts agree that, along with tougher economic penalties, criminal punishment for individuals involved in collusion must be strengthened, since the current light punishments have allowed collusion to persist as a “profitable crime even if caught.”

According to the prosecution’s indictment on the flour price-fixing case released on March 13, Song, the CEO of Daehan Flour Mills who was indicted in February, previously served as the sales manager at Daehan during the 2006 collusion incident involving eight milling companies. At that time, he attended collusion meetings with competitors and agreed on flour prices and supply volumes with executives from rival firms. The prosecution noted, "He had already actively participated in a previous flour price-fixing case."

"Need to Raise the Level of Criminal Punishment for Collusion Participants"

The reason participants in collusion repeatedly engage in such secret dealings is that, currently, fines are only imposed on corporations, while individuals (employees) who actually discuss and execute the collusion face only minor penalties.

Article 124 of the current Fair Trade Act stipulates that colluding business operators (companies) and those who instruct collusion are subject to "imprisonment of up to three years or a fine of up to 200 million won." This is significantly lower than the level of punishment in major countries overseas.

In the United States, where competition law is the most advanced, the goal of antitrust law is achieved by actively punishing individuals. The number of individuals indicted for antitrust violations far exceeds that of corporations, and over half of those brought to trial receive prison sentences.

In the United Kingdom, participants in collusion can be sentenced to up to five years in prison or an unlimited fine; in Canada, up to 14 years in prison or an unlimited fine; and in Australia, up to 10 years in prison and a fine of up to 660,000 AUD (approximately 660 million won). Denmark, Romania, and Japan also impose strict punishments on collusion participants, with maximum prison terms ranging from five to six years.

Attorney Koo Sangyeop, former Director of Legal Affairs at the Ministry of Justice and former Head of the Fair Trade Investigation Division at the Seoul Central District Prosecutors’ Office, said, “Currently, the punishment for collusion participants is imprisonment for up to three years or a fine of up to 200 million won, but this is hardly enforced,” adding, “If financial penalties such as fines or surcharges are ineffective, we should consider imposing strong criminal punishment on the main offenders.” Kim Hyungbae, former President of the Korea Fair Trade Mediation Agency, also pointed out, “If there is profit to be made, companies will inevitably engage in collusion. Therefore, the level and frequency of criminal punishment for collusion participants must be raised. There should be an atmosphere where people ask themselves whether they are willing to go to prison for their company.”

The "exclusive right to file complaints," which allows only the Fair Trade Commission to report collusion, is also problematic. The prosecution can only indict collusion participants when the Fair Trade Commission files a complaint. As a supplementary measure, the right to request a complaint was granted to the Prosecutor General, but if the prosecution office is abolished in October, this authority is likely to be transferred to other investigative agencies such as the Serious Crimes Investigation Agency. In that case, there are concerns that the prosecution’s unique investigative capabilities in collusion cases may be lost.

If Collusion Cannot Be Eliminated, the Detection Rate Must Be Increased

The prevailing opinion is that it is virtually impossible to completely eliminate collusion. From an economic perspective, since the profits from collusion are significant, collusion will inevitably continue under the current system where the expected gains exceed the anticipated penalties even when collusion is detected. Ultimately, the system must be structured so that collusion results in substantial disadvantages.

Attorney Koo said, “From a rational perspective in a monopolistic market, collusion makes sense. To prevent collusion, there must be corresponding risk factors, and awareness must be instilled that engaging in collusion is dangerous precisely because of these risks. For instance, if the social cost of certain collusion is 10 billion won, but the detection rate is only 20%, the penalty should be raised to 50 billion won instead of 10 billion won, thereby increasing the detection rate and the risk and disadvantage of collusion.”

Lee Hwang, a professor at Korea University Law School, said, “Given the historical characteristics of Korea’s agricultural culture, it is difficult to expect the complete eradication of collusion, and the reason collusion is more severe here than in other countries is the lack of deterrence. If the detection rate were 100%, even modest fines would serve as a deterrent. However, if collusion is not detected regardless of how high the fines are set, it will persist. To raise the detection rate, it is important to enhance the enforcement capabilities of agencies such as the Fair Trade Commission.”

"Actively Utilize Leniency... The Reporting Channel Should Be Unified"

Many believe that the leniency program (voluntary reporting immunity), which has recently been criticized as a loophole for escaping fines, should still be maintained. Leniency is considered essential for detecting collusion. In particular, leniency can instill fear among companies that “collusion can be uncovered at any time,” thereby serving as both a deterrent and a means of increasing the detection rate.

Former President Kim said, “Because of leniency, companies always assume that collusion could be detected at any time, making it highly effective in deterring collusion. While there may be moral criticism that leniency allows companies to avoid punishment, without the leniency program, collusion would not be detected and would become easier.” He added, “Most collusion detected by the Fair Trade Commission is through voluntary reporting, and globally, most collusion is also uncovered this way. Although the Fair Trade Commission uses various analyses to predict and detect bid-rigging, in the case of general price-fixing, unless someone involved in the collusion comes forward, it is impossible to know.”

The problem is that the current leniency reporting channel is divided between the Fair Trade Commission and the prosecution, resulting in cases where companies do not receive immunity from fines even after self-reporting. For this reason, there is a growing call to unify the reporting channel to either the Fair Trade Commission or the prosecution, so that companies can utilize leniency smoothly. Attorney Koo said, “The reporting channel for leniency should be unified, and the Fair Trade Commission and prosecution should share information in real time. However, collaboration between the two is currently lacking. Collusion is not something to fight over turf. If leniency information is shared in real time and cooperation is achieved, the detection rate for collusion would dramatically increase, and leniency benefits could be considered as having been reported to both agencies simultaneously.”

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