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Legislative body recommends reinforcement in prohibiting corporate internal trading

2016/09/28 09:44

SEOUL, Sept. 28 (Yonhap) -- A legislative research body recommended Wednesday that the government strengthen restrictions on corporate internal trading to rein in business groups who work around the law to continue the unfair practice.

The current law forbids inter-affiliate trading within a business group whose owner and family hold more than 30 percent of the shares in an affiliate. Such trading is blamed for allowing owner families easy and high profits by having subsidiaries award lucrative contracts to each other, undermining the principle of fair competition.

The National Assembly Research Service said the bar should be lowered to 20 percent and also include shares in affiliates not directly controlled by the owner family.

Many of the conglomerates lower their shareholdings artificially to meet the 30 percent rule, and in many cases, they retain control of the affiliates even after lowering their stakes through cyclical ownership of subsidiaries' shares, the legislative body said in its report.

One business group owner skirted the law by keeping the stakes just nine shares short of 30 percent, while in another case, the owner family kept their stakes at a carefully managed 29.89 percent, the report pointed out.

The report also recommended that the government define more clearly what constitutes as "unfair profits" to better monitor internal trading.

The Fair Trade Commission (FTC) has said it plans to set a reinforced guideline on inter-affiliate trading in the second half of this year.

"Issues related to corporate internal trading have been raised in past parliamentary audits, but the FTC's stance is to make revisions based on discovered shortcomings in the present regulation rather than amending the law," the report said. "If potential loopholes become actual loopholes, then they must be reviewed even before the revisions."