Samsung affiliates fined for ‘illicit’ internal trading
Company says regulator’s measure ‘regretful’
The Fair Trade Commission (FTC) fined five major affiliates of Samsung an aggregate 235 billion won, Thursday, for unfair internal trading involving an in-house cafeteria business.
The country’s antitrust regulator said it fined Samsung Electronics, Samsung Display, Samsung Electro-Mechanics, Samsung SDI and Welstory 234.9 billion won ($206.8 million).
This is the highest fine to date to be issued over an unfair cross-affiliate deal. The number includes the 101.2 billion won fine levied on Samsung Electronics, the largest-ever amount imposed on a single company.
The four Samsung units are accused of giving special treatment to Welstory, a catering service affiliate, by unfairly allowing it to run its in-house cafeteria business at the four affiliates’ facilities, shortly after Welstory was created in 2013.
Banned under the FTC regulations, such alleged business support, without opening up opportunities to other companies to provide their services, is centered on a guaranteed profit margin regardless of food costs, inflation, wages and other factors that can affect the catering sector.
This allowed Welstory to secure an average 15.5 percent margin in operating profit for the past eight years as the country’s largest food service provider.
The margin is far higher than the 3.1 percent average of 11 other competitors, mostly affiliates of top-tier conglomerates such as Hyundai Motor, LG, CJ and Shinsegae.
The FTC ruled that the stabilized profit enabled Welstory to serve as a “cash cow” for members of the group’s founding family, especially de facto leader Lee Jae-yong, and accordingly enable them to tighten their grip over the business empire.
The commission noted Welstory is a wholly owned subsidiary of Samsung C&T, the group’s de facto holding company with its largest shareholder being Lee, who is currently imprisoned on corruption charges related to the impeached former President Park Geun-hye.
The former provided a sizable portion of its net profits for Samsung C&T as dividends.
The commission also said that Samsung Electronics, the group’s flagship affiliate, and its former executive Choi Gee-sung were mainly responsible for the unlawful business support involving Welstory in favor of the owner family.
The antitrust regulator said it will file complaints with the prosecution against Samsung Electronics and Choi.
In a statement, Samsung called the FTC’s decision “regretful,” arguing the firm’s efforts for the well-being of its employees has been “misread as unfair business support.”
“The FTC’s judgment is one-sided … There was no such order related to unjust support, and we’re concerned it can wrongfully affect the prosecution and court in their future decisions,” the company said.
Samsung added it will keep its open competition over its in-house cafeteria business irrespective of the FTC decision.
It referred to the competitive bidding adopted earlier this year in accordance with the FTC’s order on conglomerates to give small and mid-sized companies chances to expand their presence in the catering service sector.
Five conglomerate affiliates — Samsung Welstory, Our Home, Hyundai Green Food, CJ Freshway and Shinsegae Food — account for 80 percent of the market.
In May, Samsung Electronics, Welstory and three other involved affiliates jointly proposed a self-remediation plan to address the alleged antitrust practice. The plan included lowering entry barriers for cafeteria businesses to give unaffiliated firms a chance.
Under the Monopoly Regulation and Fair Trade Act, companies that are accused of antitrust activities are allowed to present corrective measures.