FSS under fire for flip-flopping on Samsung Biologics

New Financial Supervisory Service Governor Yoon Suk-heun

By Jhoo Dong-chan

The Financial Supervisory Service (FSS) is in the hot seat for its flip-flopping stance on Samsung Biologics over the company's alleged accounting fraud.

The financial regulator said in January last year that Samsung Biologics had not violated the related law during a meeting with outside experts about the possible fraud.

The agency, however, shifted its position last week, accusing Samsung Biologic of breaching accounting laws.

“We think there was an accounting rule breach, but the final decision could change,” an FSS official said May 1.

The agency is now reportedly reviewing a plan to report the case to the prosecution while imposing a 6 billion won ($5.5 million) fine on the company. It is also demanding the sacking of the firm's head.

If the FSS pushes ahead with the plan, it will be the heaviest penalty it has ever imposed on a company. It fined Daewoo Shipbuilding & Marine Engineering 4.5 billion won for the same reason last year. The move is in line with new FSS chief Yoon Suk-heun's strong determination to reform the nation's conglomerates, or chaebol.

Yoon has hinted he will take stern measures against Samsung Biologics since he has long blamed chaebol for “irresponsibility,” stating, “Major financial firms are all owned by chaebol, but they never step forward until there is a problem.”

Samsung Biologics strongly denied the allegations, saying the company's books were sound. It added during a press conference last week that it was considering filing an administrative lawsuit against the FSS as it had never breached related laws to make illegal profits.

“If a decision is made that we cannot accept, we plan to file an administrative lawsuit,” said Samsung Biologics Vice President Shim Byung-hwa.

Shares of Samsung Biologics plunged nearly 20 percent last Wednesday, the day after the FSS announced its decision to take the provisional measure against the firm. They ended at 404,000 won, down 17.2 percent from the previous day.

The possible accounting fraud claim first surfaced after a local activist group, the People's Solidarity for Participatory Democracy (PSPD), questioned the integrity of the company's books for 2015. The company posted a 1.9 trillion won net profit that year after net losses for four consecutive years from 2011.

Samsung Biologics said the profit was the result of following IFRS accounting standards.

Thanks to the surging market value Samsung Bioepis, which is partially owned by Samsung BioLogics, on the back of approval of copies of core biotech drug products, the latter said it conducted a corporate valuation based on market value instead of acquisition value. The PSPD argued that such a change violated accounting rules.