Hanwha Group suspected of illegal internal transactions
By Park Si-soo
Kim Seung-youn
The Fair Trade Commission (FTC) is investigating Hanwha S&C on suspicion that the IT services affiliate of Hanwha Group has served as a vehicle collecting illegal gains for group Chairman Kim Seung-youn and members of his family.
The investigation was started at the request of Rep. Kim Gi-sik of the main opposition New Politics Alliance for Democracy, who claimed during a recent National Assembly audit that the affiliate has raked in massive gains by arranging the group’s IT deals and charging higher-than-market fees.
Hanwha S&C is owned by the chairman’s three sons. The company reported 409.1 billion won ($344.9 million) in domestic sales last year, with 52 percent or 213.9 billion won generated by deals with other Hanwha affiliates, according to the lawmaker.
Thirty nine out of 51 Hanwha affiliates have business relationships with the company, the lawmaker said, citing data from the Financial Supervisory Service.
The lawmaker said Hanwha S&C’s brisk deals with other affiliates, despite their relatively high cost, were possible with the chairman’s instruction and this practice has only fattened the pockets of the group head and his family members.
He said the practice is subject to punishment, citing anti-trust laws under which Hanwha S&C is allowed to make up to 12 percent of its sales from deals with other Hanwha affiliates.
The government is getting tough with such internal transactions as many big companies here have adopted this practice to help fatten the pockets of their owners. Samsung, Hyundai Motor, GS and many other conglomerates here have had their schemes busted by the fair trade regulator.
“There are two issues in which Hanwha S&C is believed to have violated the law ― first, being involved in IT deals with Hanwha affiliates as an unnecessary middleman and second, charging exorbitantly high fees,” an aide to the lawmaker said. “This is a typical money-making scheme that has been observed at many group affiliates owned by the group chief or his key family members.”
He claimed Hanwha Securities recently purchased IT devices through Hanwha S&C at a price nearly 3 billion won higher than a direct deal with their manufacturer. He said Hanwha S&C used to charge twice as much in fees, compared with those of other third-party agencies.
An FTC spokesman refused to confirm whether or not it was investigating Hanwha S&C, citing the confidentiality of the matter.
A Hanwha spokesman also refused to discuss detailed information about the issue. He said the group was trying to reduce internal transactions.