Kakao Mobility faces severe penalties for alleged accounting fraud

A woman with a suitcase walks by a Kakao Taxi in Seoul in this September 2021 photo. Yonhap

The Financial Supervisory Service (FSS) is seeking maximum sanctions against Kakao Mobility, citing allegations of accounting fraud.

According to industry sources, the FSS issued a preliminary notice to Kakao Mobility, Thursday, after an investigation into the company's questionable accounting practices. The FSS has decided to apply its most severe level of sanctions known as Intentional Level 1 to the case.

The FSS's framework for assessing violations is distinguished between the nature of the misconduct — intentional, gross negligence or simple negligence — and assigns severity from levels 1 to 5, with level 1 being the most serious.

The FSS will seek to impose penalties on Kakao Mobility and pursue prosecution. Additionally, Ryu Gung-seon, the CEO, has seen calls for his dismissal.

During its franchise taxi operations, Kakao Mobility collected 20 percent of the operational revenue from the royalties of its transportation companies, only to return 16 or 17 percent to these companies under the guise of "business collaboration agreements."

The FSS believes that Kakao Mobility should have only identified 3 or 4 percent of these collected fares as its actual revenue, not the full 20 percent of the fares.

Last year, the reported revenue of Kakao Mobility was 791.5 billion won ($595 million). However, the FSS considers that about 300 billion won was inflated through the aforementioned accounting maneuver.

There is speculation within the industry that this contractual structure was deliberately designed to boost the company's valuation in the lead-up to its initial public offering.

The final determination of the sanctions against Kakao Mobility will be confirmed after reviews by the Financial Services Commission.

"Although we have diligently explained our accounting methods, it seems they have not been fully accepted," Kakao Mobility stated. "With further reviews pending, we remain committed to earnestly presenting our case."