Myeongnyundang is set to face a Korea Fair Trade Commission hearing over allegations that it lent funds to its affiliated lending companies at interest rates below prevailing market levels.

If the examiner's findings are accepted in full and the conduct is recognized as a "highly serious" act of unfair support, the fine could reach around 35 billion won ($22.7 million).

The Korea Fair Trade Commission building at Government Complex Sejong in Eojin-dong, Sejong [Newsis]
The Korea Fair Trade Commission building at Government Complex Sejong in Eojin-dong, Sejong [Newsis]

The Fair Trade Commission said Monday it had submitted an examination report to its committee and forwarded it to the parties involved, detailing allegations of unfair support under the Fair Trade Act against Myeongnyundang and 14 of its affiliated lending companies.

The examination report sets out the facts established during the investigation, an assessment of whether the law was violated, and the examiner's recommended sanctions. However, it reflects only the examiner's opinion — the final decision on whether to impose sanctions and at what level will be made after deliberation by the full commission.

The examiner determined that from December 2021 through April this year — a period of roughly four years and three months — Myeongnyundang lent funds to affiliated lending companies it had established at interest rates below prevailing market rates, providing them with excessive economic benefits.

Between 2021 and 2024, Myeongnyundang established 14 lending companies in succession and used funds including policy financing from the Korea Development Bank to lend each affiliate up to 10 billion won. Each lending company then on-lent those funds to franchise owners.

At the time, these lending companies were in their early stages and unable to raise funds independently, yet they received financing from Myeongnyundang at an annual interest rate of around 4.6%.

As a result, the examiner found that the affiliates paid less in interest than they would have under normal market rates, generating a combined economic benefit of approximately 21.7 billion won.

The examiner classified the conduct as a highly serious act of unfair support under the Fair Trade Act and recommended that the commission issue a corrective order, impose a fine, and refer both the corporation and individuals involved for prosecution.

The Fair Trade Commission said it plans to apply pre-amendment fine notification guidelines to this case.

Under those guidelines, the standard fine rate for a highly serious act of unfair support ranges from 120 to 160 percent of the support amount. Applying the maximum rate to the examiner's calculated support amount of 21.7 billion won would put the potential fine at up to approximately 34.7 billion won.

The commission said it will guarantee the respondents the opportunity to submit written opinions, review and copy evidence, and make oral statements before reaching a final decision at a full commission meeting.

"We plan to continue monitoring conduct that harms competition by providing affiliates with funding at below-market interest rates," a Fair Trade Commission official said.


y2k@heraldcorp.com