Kakao Mobility may face sanctions for alleged revenue overstating

[Photo by MK DB]

Kakao Mobility Corp., a transportation service subsidiary of South Korea’s platform giant Kakao Corp., may face heavy sanctions as the country’s financial watchdog concluded that its revenue overstatement was intentional following an investigation.

According to industry sources on Thursday, the Financial Supervisory Service (FSS) issued a preliminary notification of measures to Kakao Mobility on the same day for its suspected fraudulent accounting.

The preliminary notification is sent before the FSS presents its suggested measures to the supervisory committee to decide finalized sanctions, and it typically includes the standards and rationale of the suggested measure by the authority, as well as the expected level of sanctions.

The FSS reportedly applied the highest sanction standard to Kakao Mobility in the notification, indicating that the authority holds the company accountable for both illegality and motivation aspects to the highest degree.

The suggested measures in the notification include the dismissal of the representative and referral of the case to the prosecution for criminal, according to sources.

The FSS conducted an accounting audit upon allegations that Kakao Mobility inflated franchise taxi business sales for several years from 2020.

Under Kakao Mobility‘s current franchise taxi business structure, the taxi companies pay about 20 percent of the fare as a commission, and Kakao Mobility returns about 16-17 percent of the fare under the condition of participating in advertising and marketing.

Kakao Mobility recognized the entire 20 percent of the fare as sales revenue, using the gross method, while the FSS believes that only 3-4 percent of the net profit should be recognized as Kakao Mobility’s sales revenue, using the net method.

According to the FSS, the company’s inflated sales amounted to approximately 300 billion won ($225.7 million) in the past year.