Lotte fined W649 million for affiliate piggybacking
Lotte Group was slapped with a hefty fine for illegally supporting a money-losing affiliate, the anti-trust regulator said Thursday.
The Fair Trade Commission (FTC) said it had fined Lotte PS Net, a financial services provider associated with the country’s fifth largest conglomerate, 649 million won ($569,700).
The affiliate was found guilty of allowing money-losing affiliate, Lotte Engineering and Machinery MFG, an anti-pollution installation constructor, to make illegal gains in transaction for the former’s large-scale purchase of automated teller machines (ATM).
The illegal inter-affiliate support occurred in 2008 when PS Net unveiled a plan to buy some 1,500 ATMs over the next two years as part of a new business strategy.
It involved striking a deal for the purchase directly with an independent ATM maker, but Shin Dong-bin, then Lotte Group vice chairman and now chairman, designated MFG as a paid contract organizer.
The FTC said MFG played no role in completing the deal, meaning Shin intentionally put the money-losing company into the buying process in order for it to make money in the form of an organizing fee, which constitutes a violation of the country’s Fair Trade Act.
Starting September 2009, PS Net purchased ATMs worth 70.7 billion won via MFG, and the latter earned massive illegal gains ― an estimated 4.15 billion won.
This helped the MFG escape from a restructuring program, as in 2008, the firm posted 88.1 billion won in net losses. It recovered the following year, the FTC said.
“This is the FTC’s first crackdown on this kind of illegal affiliate-to-affiliate support,” said Shin Young-sun, a senior director who is familiar with the case. “We will widen the investigation to detect similar violations by other companies.”
Some critics claimed Lotte Chairman Shin should be punished for breach of trust on the grounds that the PS Net bought the ATMs at higher prices due to him placing MFG as a third party. An FTC spokesman said the prosecution jointly investigated the case with a view to charging Shin, but failed to do so.
The spokesman said some tycoons are suspected of having engaged in inter-affiliate support to help increase the profit of affiliates in which they own a controlling stake.