Probe requested on Korean Air

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Probe requested on Korean Air

The country’s antitrust agency has filed a complaint to prosecutors against the son of Korean Air Chairman Cho Yang-ho for unfairly funneling business to the airline’s affiliates and fined the companies involved 1.4 billion won ($1.2 million) on Sunday.

Cho Won-tae, executive vice president of Korean Air, is accused of offering favorable contracts to the airline’s two subsidiaries formerly owned by the son and two daughters of Chairman Cho, which allowed them to pocket the proceeds.

This is the first time the Fair Trade Commission has referred a member of a conglomerate’s owner family to the prosecution, though Korea’s family-run groups are often seen engaging in irregular business practices between parent companies and subsidiaries. In November 2015, the agency devised a stricter regulation to ban owners of conglomerates from making unfair business deals with affiliates.

The Fair Trade Commission said Korean Air let Cybersky, a unit in charge of supporting the airline’s in-flight duty-free business, take unfair profits. After the agency began investigating Korean Air as well as two units — Cybersky and Uniconverse — last May, Korean Air acquired the entire stake of Cybersky in November.

In one contract for managing Korean Air’s in-flight duty-free shop website, Cybersky, which was previously owned by the three children of Chairman Cho, took all the advertising revenue from the online platform.

Korean Air also exempted Cybersky from commission fees whenever it sold some items by mail order, even though the contract stated the fees were 15 percent of the price per item.

As for Uniconverse, which provides IT services, the airline was found to have made excessive payments for its equipment and maintenance services. Cho Won-tae serves as head of Uniconverse, which is wholly owned by Chairman Cho and his three children.

Korean Air, which is under Hanjin Group, previously had a partnership with Uniconverse to operate a call center for the airline, but Uniconverse transferred the business to Hanjin Information Systems & Telecommunication after the probe kicked off.

Of the 1.4 billion won fine, Cybersky was ordered to pay 103 million won, Uniconverse 612 million won and Korean Air 715 million won.
Korean Air said that it had already dealt with the Fair Trade Commission’s demands through an asset sale and transfer of operating rights.

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