The Korea Fair Trade Commission is significantly tightening its standards for referring to prosecutors the heads or corporate entities of large conglomerates that repeatedly submit false designation data. Under the revised regime, repeat violations within three years will in principle trigger a criminal referral, and cases involving serious false submissions will be pursued more aggressively through criminal channels.

The Fair Trade Commission said Thursday it had drawn up an amendment to its "Guidelines on Referral for Violations of Reporting and Data Submission Obligations Related to Business Groups" and would open the draft for public notice through Aug. 26.

The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]
The Korea Fair Trade Commission at Government Complex Sejong in Sejong [Newsis]

The revision aims to strengthen the effectiveness of sanctions against companies that submit false designation data — or refuse to submit it — required for the designation of publicly disclosed business groups.

The large conglomerate designation system is designed to curb the concentration of economic power, with the scope of regulated entities determined by the designation data that business groups submit. Because a company that submits false data can avoid being designated — and thereby escape restrictions on cross-shareholding, debt guarantees and self-dealing — the accuracy of that data is considered central to the system's integrity.

The amended guidelines change the standard for mandatory referral in cases of false data submission: a referral will in principle be made when the seriousness of the violation is significant, or when the seriousness is substantial and the likelihood of awareness is also substantial.

Under the current guidelines, mandatory referral applies only when the likelihood of awareness is significant, or when the likelihood of awareness is substantial and the seriousness of the violation is significant. This has meant that even serious violations could escape referral if the awareness element was not clearly established.

The Fair Trade Commission said it revised the referral criteria to hold companies more strictly accountable for serious legal violations. However, even in cases of very serious violations, a referral may be waived as an exception if the company can demonstrate through objective evidence that its likelihood of awareness was minimal.

The revised guidelines also introduce explicit standards for repeat offenders. Individuals or corporations that commit the same violation within three years will in principle be subject to referral. The current guidelines contain no separate provision for repeat violators.

In addition, the criteria for assessing awareness and seriousness in cases where affiliates held by the controlling shareholder — or by close relatives of the controlling shareholder — are omitted from designation data have been made more specific, reflecting recent Fair Trade Commission adjudication precedents.

Cases in which a company where the controlling shareholder holds a substantial stake is omitted or falsely recorded are classified as instances of "significant likelihood of awareness," while cases involving companies held by close relatives with a substantial stake are classified as instances of "substantial likelihood of awareness." Prior experience submitting designation data may also be taken into account when assessing the likelihood of awareness.

The criteria for assessing seriousness have also been revised. Even when an omission does not affect whether a business group is designated as a publicly disclosed conglomerate, a large-scale omission sustained over a long period will be treated as a serious violation. Conversely, a small-scale omission over a short period is cited as an example of a minor violation.

The Fair Trade Commission said it expects the revised guidelines to more effectively curb controlling families' use of irregular means to expand their dominance and pursue private gain.


y2k@heraldcorp.com