FTC faces criticism over organizational restructuring

[Courtesy of FTC]

The Fair Trade Commission (FTC), South Korea’s regulatory authority for economic competition, underwent an organizational restructuring in April that separated its investigation and policy departments to bolster their respective capabilities. However, the move has been criticized by the business community and concerns are rising about the expansion of investigations in a less strategic manner.

The FTC has been investigating alleged collusion regarding commission fees in the financial and telecommunications sectors, false advertising in the education market, and unfair franchise operations in the restaurant industry in 2023 to date. But some sources from business circles pointed out that following the April restructuring, the units responsible for the investigations have been conducting excessive on-site investigations to earn higher scores on performance-based assessments. “The FTC’s scope of activities is expanding while its investigative capabilities appear to be diminishing,” an official working at an investigated company noted.

A notable indicator of FTC’s declining investigative effectiveness is the substantial increase in the number of cases where it has lost appeals against fines.

According to data on fines imposed by the FTC compiled by Representative Yoon Chang-hyun of the ruling the People Power Party, the FTC imposed fines totaling 822.4 billion won ($615.1 million) last year. Out of this sum, the authority had to refund 137.9 billion won after losing lawsuits for these penalties. When factoring in the interest incurred during the initial collection and subsequent refunding process, amounting to 9.1 billion won, the FTC ended up returning 17.9 percent of the fines imposed in the year. This is a significant increase compared to the 3.5 percent and 1 percent of fines refunded in 2020 and 2021 respectively.

The use of external law firms in litigation against companies also surged, with the FTC having 31 in-house lawyers in its organization. While only five of the 171 cases, or 2.9 percent, filed last year were handled by these in-house lawyers, a large majority of cases, or 97.1 percent, were represented by outside legal counsel. The proportion of external representation has been steadily rising, from 90.5 percent in 2020 to 94.8 percent in 2021 and hitting 97.1 percent last year.

“It is crucial to focus on reducing the financial waste associated with annual tax refunds,” Yoon said.

“The necessary systemic changes, such as relaxing the criteria for designating large business conglomerates, have not been implemented yet,” an unnamed representative from a business group added.

The FTC brushed the criticism about its investigative activities aside, emphasizing its responsibility to establish fair trading practices in the market and protect consumers by investigating various unfair practices, including the abuse of market power and collusive behavior among operators.