Shinsegae under probe

Lee Myung-hee Shinsegae Chairwoman

Heir may be summoned amid full-court press on chaebol

By Kim Rahn

Shinsegae Group Vice Chairman Chung Yong-jin may be summoned for questioning over allegations that the group engaged in unfair inter-affiliate trading.

Prosecutors at the Seoul Central Prosecutors’ Office said Tuesday that they are stepping up investigations into allegations of breach of trust against the group’s owner family, and are organizing an exclusive team for the case.

The move is in line with President-elect Park Geun-hye’s “economic democratization” pledge that is aimed at correcting unfair business practices by family-run conglomerates.

“We’ve secured enough evidence to prove the allegations, such as memos from company officials regarding Chung ordering the unfair trading. We’ll have to question the vice chairman soon,” a prosecutor said.

Managers of Shinsegae said the prosecution hasn’t told them about the summons yet.

The investigation follows a complaint filed last October by the Solidarity for Economic Reform, a civic group, against Chung and two other executives of E-Mart, the conglomerate’s discount chain, for alleged breach of trust.

The two others, former E-Mart chief Choi Byung-ryul and the current one, Huh Yin-cheol, have already been questioned. Earlier in November, prosecutors also raided Shinsegae’s management strategy office in central Seoul and the headquarters of E-Mart to secure accounting books and other materials.

The complaint came weeks after the Fair Trade Commission (FTC) slapped a fine of 4.06 billion won on the group and E-Mart for illegally supporting their affiliates _ Shinsegae SVN and the Westin Chosun hotel chain, the retail group’s bakery and hotel operations.

According to the FTC, Shinsegae established the bakery business in 2005 and had its outlets operate at Shinsegae Department Stores and E-Mart stores nationwide. Shinsegae and E-Mart lowered sales commission rates for the bakery chain to 20.5 percent from 23 percent, the market standard. The amount of financial aid to Shinsegae SVN between March 2009 and last September reached 6.2 billion won ― in other words, Shinsegae and E-Mart saw a loss, which they would not have suffered if they had applied market standards.

Chung’s sister and group Vice President Chung Yoo-kyung, who is also the daughter of Shinsegae Chairwoman Lee Myung-hee, held a 40-percent stake in Shinsegae SVN. Through the illegal backing, it saw its revenue reach 256.6 billion won in 2011, almost double the 136.6 billion won made two years earlier, according to the watchdog.

After the FTC inspection result came out, she sold the shares.

To prevent similar practices, the Lee Myung-bak administration has been working on strengthening regulations on conglomerates’ illegal support to its affiliates through favorable contracts, such as low commissions. As those affiliates are usually run by the offspring of chaebol owners, such trading has become a means of “succession of wealth.”

President-elect Park also promised to take a stern action toward such practices. In a meeting with members of the Korea Federation of Small and Medium Business on Dec. 26, she said, “I’ll root out unfair trade committed by conglomerates, such as unfairly lowering payments to suppliers or stealing technology which medium-sized companies developed.”