K-Biz: hot bed of irregularities

By Lee Hyo-sik

Park Sung-taek, K-Biz chairman

The Korea Federation of Small and Medium Business (K-Biz) has committed a host of irregularities over the years, an audit found Tuesday.

The Small and Medium Business Administration (SMBA), which audited K-Biz last September, said one of Korea’s five major business associations has inappropriately managed its subsidiaries and a cooperative fund for small business owners, as well as promoted dubious inter-subsidiary dealings.

SMBA exposed 43 irregularities, asking K-Biz Chairman Park Sung-taek to reprimand a total of 13 employees involved in them.

“We found that K-Biz didn’t properly manage its retail subsidiary Home & Shopping, and violated internal rules when investing in real estate with money from the cooperative fund,” an SMBA official said. “K-Biz was found to have been involved in unfair business practices by awarding all the contracts to its affiliates.”

According to SMBA, K-Biz failed to properly oversee Home & Shopping when the online shopping mall, which exclusively deals with goods made by small firms, sold its stake in a consortium that had rights to operate a duty free shop in downtown Seoul.

SMBA officials pointed out that Home & Shopping sold its 26.67 percent stake to Hana Tour last December, at a price lower than the market value. The consortium won government approval to open a duty free shop in Seoul at the time. After securing a majority stake, Hana Tour changed the name of the store to SM Duty Free.

SMBA asked K-Biz, which represents more than 3.3 million small and medium enterprises (SMEs), to file a complaint against Home & Shopping CEO Kang Nam-hoon with the prosecution on charges of breach of trust. K-Biz was also asked to lodge a civil suit against Kang for compensation.

In addition, K-Biz was criticized for recklessly managing the Yellow Umbrella Cooperative, the cooperative fund that offers higher than market interest rates, tax and other benefits to subscribers, most of whom are small business owners.

The association was found to have arbitrarily taken 25 billion won from the fund to buy two buildings, and acquire a stake in a lottery consortium.

“K-Biz should have managed the cooperative fund in accordance with its initial purposes, but it did not,” the SMBA official said. “It used significant amounts of money to expand its presence in provincial areas, offer favors to its member companies and bolster its public relations activities, which all went against the fund’s objectives.”

K-Biz was also chided for inter-subsidiary dealings with its affiliates as it was found to have granted all the contracts to its own travel agency and property manager without holding open bids.

K-Biz is scrambling to deal with SMBA’s audit results, saying that it will take appropriate measures after reviewing them in detail.

“Chairman Park and other committee members will soon hold a meeting to decide whether to take legal action against Home & Shopping CEO Kang,” a K-Biz official said. “We will deal with other SMBA comments by improving the way we do business.”