FSS, Blue House turn wary eyes on Cho clanRegulatory pressure is building on Hanjin Group thanks to the embarrassing headlines produced by the family that controls it, the badly behaving Chos.
The Financial Supervisory Service (FSS) said Monday that a management’s bad reputation will have an impact on its regulation.
Groups with a lot of debt on their books - more than 1.5 trillion won ($1.4 billion) - are liable to extra scrutiny. The FSS requires their main creditors to do financial stability assessments on the risk of their mountains of debt.
This year, 31 business groups made that list, mostly big names like Samsung, Hyundai Motor, SK, LG, Lotte - and Hanjin.
As poor assessment can keep companies from taking out new loans or extending existing ones, the groups are usually sensitive to the result.
The FSS said in a statement Monday it decided to pay more attention to scandals involving families that run the groups because “when managements spark large public criticism or disturb fair market competition, it could negatively affect a company’s reputation and businesses.”
Industry insiders say this new criterion directly targets companies like Hanjin, which has various affiliates including Korean Air and budget airline Jin Air.
The FSS said that it is also paying more attention to risks from overseas businesses, since many groups now have overseas affiliates with debt or assets that may not be apparent at home.
Changes to the assessment guideline will be finalized by the end of this month. New rules will be applied to upcoming assessments on business groups with mountains of debt this year.
President Moon Jae-in also ordered greater scrutiny of companies alleged to have hidden assets abroad during a meeting with presidential aides on Monday.
“Evading tax by illegally hiding assets abroad is a typical activity that impedes the course of justice,” Moon said. “If there are any criminal proceeds hidden abroad, we must find them all and claw them back.”
Moon added that “leaders in society” have recently been criticized for alleged offshore tax evasion and the country needs a dedicated team of experts from different authorities like the National Tax Service, Korea Customs Service and the prosecution to investigate.
Hanjin Group Chairman Cho Yang-ho is currently being investigated on suspicions of creating slush funds and evading taxes.
Last month, the prosecution started a formal investigation of Cho’s alleged evading of inheritance tax in 2002 when his father Cho Choong-hoon died.
According to the prosecution, Cho did not pay some 50 billion won inheritance tax by failing to own up to some overseas assets he inherited. The Hanjin Group founder is known to have had assets in countries like Switzerland and France.
The Hanjin Group said Cho did not realize some of his inherited assets weren’t reported to the local tax agency at the time but said he reported in full in 2016. As for unpaid taxes, it said Cho plans to pay them all this month. The investigation is ongoing.
As investigations into Hanjin Group and Korean Air grow in number and scope, the Chos tried to appease Korean Air employees with incentive payments. But thousands of employees sharing information on the family in a KakaoTalk chat room said they weren’t buying it.
According to Korean Air on Tuesday, it decided to offer 50 percent of monthly base pays as incentive payment to all workers of Korean Air except for pilots and flight attendants at the end of this month.
The company said the incentive was intended to encourage employees after the recent establishment of a joint venture with Delta Air Lines and the opening of the second passenger terminal at Incheon International Airport earlier this year. The rate was agreed through talks between a labor union for general workers and the company last Friday.
It was the first time in 13 years that such incentive bonuses were offered for the purpose of “encouragement.”
An anonymous employee in the Korean Air employee chat room wrote, “The Cho family must think of its employees as slaves to think they could turn our minds with that incentive bonus.”
Employees are preparing for a third candlelight vigil on Friday with the expressed aim of ousting the Chos from all management positions.
In the meantime, Korean Air released its first quarter earnings report on Tuesday. Revenue increased by 7.4 percent year-on-year to 3.02 trillion won, but profits fell.
Operating profit fell 4.3 percent to 176.8 billion won and net profit plummeted roughly 96 percent to 23.3 billion won. The airline said the net profit decline was mainly due to foreign exchange losses.
The latest Cho family scandal will show in the next quarterly earnings report.
BY KIM JEE-HEE [firstname.lastname@example.org]
with the Korea JoongAng Daily
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