Mirae Asset loses trial, states reasons for inevitable inter-affiliate trading

Sagewood Country Club in Hongcheon, Gangwon Province, South Korea [Photo provided by Mirae Asset]

Mirae Asset Group, South Korea’s leading financial conglomerate, has expressed disappointment over a recent court decision that favors the Fair Trade Commission (FTC) regarding allegations of unfair support surrounding a golf course and hotel owned by the group.

In December 2017, the FTC launched an investigation into the alleged unfair support by Mirae Asset companies in relation to the golf course and the hotel run by Mirae Asset Consulting and invested by other Mirae Asset firms through a real estate fund.

Subsequently, in September 2020, the FTC imposed a corrective order and a fine of 4.3 billion won ($3.4 million) under the Fair Trade Act.

Mirae Asset Group filed a lawsuit to challenge the decision, but it was unable to overturn the ruling.

On July 5, the Seoul High Court upheld the FTC’s decision, stating that Mirae Asset, through its subsidiary Mirae Asset Consulting, had unfairly benefited from significant usage of the golf course (Blue Mountain CC) and the hotel (Four Seasons Hotel) by other Mirae Asset companies.

Mirae Asset Group said the court’s decision failed to fully grasp the challenges it faces as the ruling on the financial group’s case brings to light the practical limitations imposed by the Act on the Structural Improvement of the Financial Industry, which restricts the control of industrial capital over financial capital.

The court ruling raises the question of why Mirae Asset Group chose to operate the facilities through Mirae Asset Consulting despite the consultancy’s huge operating losses of 55.4 billion won from 2015 to 2017 and a decline in enterprise value.

Due to the regulation, commonly known as the law on the separation of industrial and financial capital, other Mirae Asset financial subsidiaries, such as Mirae Asset Global Investments, Mirae Asset Capital, Mirae Asset Securities, and Mirae Asset Life, were unable to operate the facilities.

Consequently, Mirae Asset Group made the decision to utilize these facilities through Mirae Asset Consulting, its sole non-financial subsidiary.

Mirae Asset extensively explored other companies to operate these facilities but could not find viable options due to the uncertain profitability associated with running a golf course and a luxury hotel like the Four Seasons Hotel.

These businesses incur significant fixed costs, requiring ongoing investments to maintain their upscale nature.

The utilization of the hotel and the golf course by Mirae Asset Group was not solely due to legal constraints but also driven by its business expansion strategy.

As a financial institution, building customer trust is a fundamental aspect, and it continually strives to establish itself as a high-end brand that leads the ever-changing trends in the financial market.

The group’s merger and acquisition deals with Daewoo Securities and PCA Life were crucial in this regard. Throughout the process, Mirae Asset dedicated substantial efforts to strengthen relationships with customers and employees, organizing various events and training programs.

Providing access to its high-quality hotel and golf course, owned by Mirae Asset Management funds, at the same price was a natural and reasonable decision.

The 4.3 billion won fine does not significantly impact Mirae Asset Group. Mirae Asset Securities alone incurs annual general administrative expenses of about 1 trillion won.

Mirae Asset Group’s perspective centers on actively demonstrating the structural limitations of the law, rather than merely focusing on the issue of the fine.

Mirae Asset Group believes that its decision to utilize the facilities and the efforts made to build relationships with customers and employees were not driven by providing unfair benefits to specific subsidiaries but were instead motivated by its commitment to creating a robust and trusted financial brand.

“It is a natural and reasonable decision to use a golf course and a hotel invested by group companies, and it is very disappointing to apply the ban on inter-affiliate trading within a business group to a company that lost more than 50 billion won while operating these facilities,” said a Mirae Asset Group official.