FTC slaps record fine on Samsung for unfair support to food service affiliate

[Graphics by Song Ji-yoon]

South Korea’s antitrust watchdog announced on Thursday it will impose penalties of 234.92 billion won ($ 207 million) on Samsung Electronics, Samsung Display, Samsung Electro-Mechanics, Samsung SDI and Samsung Welstory for unfair intra-group trading that had benefited Samsung’s family owners.

The Fair Trade Commission (FTC) in a statement said it will pressing criminal charge on Samsung Electronics and Choi Gee-sung, a former senior Samsung executive, to the prosecution upon finding them liable behind a contract that unfairly favored Samsung Welstory, the group’s in-house cafeteria business.

The penalty is the largest one ever imposed on Samsung Group over unfair transactions.

Samsung Welstory is a wholly-owned subsidiary of Samsung C&T whose largest shareholder is Samsung Group Vice Chairman Jay. Y. Lee, currently prison term for bribery case connected to the former impeached president.

The FTC said its years-long investigations found that Choi, former head of Samsung's now-disbanded strategy control tower, was behind a private contract to allow Samsung Welstory to supply meal services to Samsung Electronics, Samsung Display, Samsung Electro-Mechanics, and Samsung SDI from April 2013 to June 2, 2021.

Welstory earned 485.9 billion won in total from transactions with the four companies between 2013 and 2019, which represents nearly 40 percent of the operating profit earned in the country’s entire group meal service industry in the same period, the FTC said.

Samsung C&T received a total of 275.8 billion won in dividend from Welstory from 2015 to 2019. Welstory’s combined net profit reached 357.4 billion won in the period, which means the majority of its net profit went to C&T.

Lee and his family members control 31.58 percent in Samsung C&T.

The FTC said Welstory was active in dividend payout based on stable cash flow from intra-group trading, playing a cash cow role for Samsung’s family owners.

Samsung Electronics immediately refuted the FTC’s announcement, saying it will file an administrative lawsuit to clarify facts. The FTC’s press release mentioned that Samsung Welstory contributed to the merger of Cheil Industries and Samsung C&T as a cash cow, but the description shows discrepancy from the FTC’s criminal report, Samsung Electronics argued.

Samsung Electronics said that the FTC’s announcement can mislead the public’s opinion and affect the direction of future criminal investigations and trials, adding it will take a legal action to clarify that Welstory transactions had been made on fair and normal commercial terms.

Shares of Samsung Electronics were unaffected by the news, rising 1 percent to 81,000 won.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]