FTC fines LS over unfair profiting

Korean electric cable and copper giant LS and its affiliates were fined by the country’s antitrust watchdog for inter-affiliate trading on Monday.

The Fair Trade Commission (FTC) fined four companies under LS Group, including LS Corp., the group’s holding company, a total of 26 billion won ($23.53 million) on Monday.

The watchdog explained that the group provided unfair profits to its owner family by forcing affiliates to do business with LS Global when they bought and sold electrolytic copper.

LS Global is the arm of the group that supplies nonferrous metal. It was established in December 2005, and LS’s Koo family owned 49 percent of the company until they sold their stakes in 2011.

LS-Nikko Copper, the group’s copper smelter, used LS Global as a middleman since 2006 when selling the metal it produced. LS-Nikko Copper would reduce the price of the metal as a “volume discount,” and LS Global would sell the metal at much steeper prices to other affiliates, the FTC said.

LS Cable & System, the group’s cable-producing company, began purchasing copper imports through LS Global in 2006. Prior to 2006, the company purchased copper directly from foreign producers or trading companies. The FTC estimated the practice, which it compared to mandatory tolls, provided LS Global with about 19.7 billion won in ill-gotten profits since 2006.

The watchdog also referred members of the chaebol’s owner family - including LS-Nikko Copper chairman Koo Ja-hong, also known as John Koo, and Koo Cha-yub, the chairman of LS Cable & System - and the company’s top executives to the prosecutors for investigation.

“This was significant, as we discovered and imposed a strict penalty on a conglomerate for establishing a company that gave unfair profit to its owner family for a long period of time,” said Shin Bong-sam, the head of the business group bureau at the FTC. LS Group issued a statement refuting the charges.

“LS Global is a company founded with the intent to supply copper, a strategic raw material for the group, efficiently and stably,” said the company in the statement. The group purchases about 2.2 to 2.5 trillion won worth of copper annually, according to the company.

A company spokesperson explained that it was the Koo family that founded LS Global in 2005 because it would have been against the law for other affiliates of the group to finance its establishment. As family members sold off their shares in 2011, LS Global is owned completely by the group’s holding company, according to the spokesperson.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]