[Reporter’s Notebook] Coupang’s Challenge: Time to Overhaul the 40-Year-Old "Identical Person System"

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Coupang was first designated as a "publicly disclosed business group" and as having an "identical person (controlling shareholder)" in 2021. At that time, the Korea Fair Trade Commission acknowledged that Bom Kim, Chairman of Coupang Inc, had clear control. However, due to "deficiencies in the current system" for regulating foreign controlling shareholders and concerns over the "effectiveness of criminal sanctions," the Commission designated "the corporate entity Coupang" as the controlling shareholder instead. The logic was that indirect oversight would be possible through disclosures to the U.S. Securities and Exchange Commission (SEC). Three years later, the enforcement decree was revised so that foreigners who do not meet exemption requirements, such as not participating in family management, could be designated as controlling shareholders. However, Chairman Kim again avoided designation, as it was determined that he met the exemption criteria.

After five years, the designation of "corporate Coupang" as the controlling shareholder was abruptly overturned. The Fair Trade Commission changed the controlling shareholder to "natural person Bom Kim," citing the "substantial management involvement" of Kim's younger brother. Although the brother is not formally an executive and does not hold shares, the Commission explained that, based on his level of compensation and the number of meetings he presided over, his involvement constituted management participation and thus fell outside the exemption criteria. However, when asked during a briefing whether there were explicit and quantitative standards for determining management participation, the Commission continued to give ambiguous answers such as "We made a sound judgment based on substantial influence."

The Commission also failed to provide a clear answer regarding the effectiveness of criminal sanctions, which was previously cited as a reason for exclusion from designation. The logic of "Isn't this sufficient?" is inadequate given the gravity of designating, for the first time, a CEO of a U.S.-listed company as a controlling shareholder and the potential for trade friction. The process of verifying management participation was also extremely sloppy. The Commission admitted that it only discovered the younger Kim’s vice president-level position through a parliamentary hearing last year. Only after a tip-off did it belatedly conduct an on-site inspection. This amounts to an admission of "armchair administration" for the five years during which "corporate Coupang" was designated as the controlling shareholder.

The Fair Trade Commission is often referred to as the "economic prosecutor." It must strictly adhere to laws and procedures, and its reasoning must be more meticulous than anyone else's. It is the kind of organization that reviews tens of thousands of pages of reports and spends nearly a year investigating a single collusion case. Yet, when it comes to operating the identical person system, the Commission repeatedly displays sloppiness. As the standards seem to shift like rubber bands, Coupang's announcement of an administrative lawsuit appears to be a natural next step. Some believe the designation was forced in response to public sentiment. Poor logic and lax enforcement of regulations undermine the Commission's authority.

Coupang is just the beginning. When the identical person system was first introduced in 1986, the founders of business groups were exclusively domestic nationals. As of 2023, there are now 16 business groups whose second-generation leaders are foreigners or hold dual citizenship. This proportion is expected to increase further among the third and fourth generations. A "second Coupang" could soon emerge. Establishing explicit and quantitative criteria for the designation of foreign controlling shareholders, as well as ensuring the effectiveness of criminal sanctions, is urgently needed. The business community's calls for abolishing what they call "Galapagos regulations" should also be considered. This is the challenge Coupang has presented to the Fair Trade Commission.

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