Overseas biz to disclose local ties

The government has taken a tougher stance on conglomerate and business relations with its overseas operations, including investments, in the hopes of increasing corporate transparency.

The Fair Trade Commission on Monday announced that it will be preparing what has been dubbed the “Lotte bill,” which will require Korean companies to make public the details of foreign affiliates’ ownership of local affiliates and any business transactions, including investments made between the two.

The bill will be prepared by next month and will be applied when the FTC announce the status of Korean conglomerates in May next year.

“As it was the case of Lotte Group, it was difficult to oversee cases where the governance structure wasn’t transparent by overseas affiliates governing the affiliates here in Korea,” said Shin Young-sun, an FTC secretary general. “There is a need to strengthen the ability of overseeing the market by improving the transparency of related information.”

Shin noted that in 2015, the internal business transactions between overseas operations and Korean affiliates amounted to 23 percent of all business transactions, yet the oversight of these transactions was poor.

Until now, unlike affiliates operating here in Seoul that have to disclose all their shareholders and business transactions with other affiliates under the same group, there were no legal requirement for conglomerates to announce their overseas affiliates’ stake in the local business other than the largest stakeholder.

The new regulation is not to be limited to conglomerates but will also include those whose combined assets are more than 5 trillion won ($4.25 billion). This is largely because earlier this year, the minimum for qualifying as a conglomerate was raised from 5 trillion won in assets to 10 trillion won after several companies, including the IT giant Kakao, were for the first time labeled as conglomerates.

As a result, the number of conglomerates has fallen from 52 to 27.

Saenuri Party lawmaker Kim Yong-tae issued a similar bill in July under which conglomerate heads who do not comply with the ruling, or falsify their documents, would face up to two years in prison or be fined up to 150 million won.

Under the current law, which only applies to affiliates here in Korea, the penalty is 100 million won for those who fail to report business transactions with other affiliates under the same conglomerate or those who falsify related documents.

However, despite public interest in the Lotte Group scandal, it failed to pass the National Assembly.

Before the feud between the two sons of Lotte Group patriarch Shin Kyuk-ho surfaced last year and peaked this summer, the governance structure of the retail giant remained largely in the dark.

In fact, it was thanks to the fraternal struggle that the complicated web of governance involving the Korean retail giant’s Japanese operations became known to the public.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]