SEOUL, March 4 (UPI) -- Executives of South Korea's biggest chaebol conglomerates were rattled Tuesday when the country's newly inaugurated government announced a plan to launch an intensive probe into their alleged unfair business practices.
The investigation plan was widely seen as a sign that leftist President Roh Moo-hyun has started to clamp down on the country's family-owned business empires.
The Fair Trade Commission said it would investigate Samsung Group, the country's largest conglomerate, and five other major business groups to uncover any possible illegal inter-group transactions.
"We will investigate Samsung Group, LG Group, SK Group, Hyundai Motor Group, Hyundai Group and Hyundai Heavy Industries over illegal trading between affiliates," Chang Hang-seok, the commission's chief investigator, told a news conference.
The investigation will begin next month and continue for two months, he said, adding that the prior notice of the probe schedule is designed to clear away public suspicion over the political motivation behind the probe.
It is the first time in three years that the corporate watchdog has looked into the documents of the major chaebol to check inter-company dealings. "Investigators will scrutinize their practices from January 2000 to December 2002," a senior FTC official told United Press International.
"The probe will focus on checking whether these groups have met requirements to disclosure major inter-group deals," the official said, adding investigators have already detected signs of possible illegal transactions in these enterprises. About 10 core companies from each group will be closely checked, he said.
The FTC said state owned companies with assets of more than $17 billion, including Korea Electric Power Corporation and Korea Highway Corporation, will also be subject to the probe as they are subject to a rule banning investment into subsidiaries beyond a set amount of money and cross-payment guarantees.
The state-owned companies also include Korea Land Corp., Korea National Housing Corp., Korea Gas Corp., Korea Agricultural & Rural Infrastructure Corp. and Korea Water Resources Corp.
"The year-round probe may be burdensome for conglomerates, but it is necessary to root out unfair, subsidized deals between their subsidiaries," FTC's Chang said. "The probe is aimed at bringing greater transparency to the conglomerates."
If the groups were found to be involved in any illegal practices, they will be punished under strict laws on economic crime, the FTC official said. In the past, such corporate acts were usually punished by fines without criminal investigation.
The probe comes after last week's arrest of Chey Tai-won, head of the SK Group, the country's fourth-largest conglomerate, on charges he illegally swapped stocks in subsidiaries to increase his control on the group.
Chaebol owners consider Chey the first victim of a government assault against the big business groups and fear they could become the next target.
Son Kil-seung, the chief of the Federation of Korean Industries, a big-business lobbying group, is also due to be summoned Wednesday for questioning about allegations of accounting fraud. The prosecutors said they would question Son, SK's figurehead boss, to determine whether he was personally involved in the group's window-dressing efforts.
The conglomerates reacted with concerns that the investigation would restrict corporate activity and harm the country's economy, which was already losing steam, battered by growing geopolitical risks due to North Korea's suspected nuclear weapons ambitions as well as concerns over the Roh government's economic policies.
"The investigation should be applied to specific companies suspected of irregularities. Such a broad government probe can spread the misconception that all the chaebol are involved in wrongdoing," said a FKI official who requested anonymity. "We are concerned that a drastic drive to rein in conglomerates may undermine their business activities."
The investigation would be the first task of Roh, who took office a week ago after a long-standing pledge to eliminate illicit management practices among chaebol by improving corporate transparency.
Roh, who is seen as labor-friendly and a strong advocate of helping low-income earners, says more reforms are necessary to bring the chaebol up to international standards of corporate governance. The former human right lawyer has called for new regulations to prevent the illegal transfer of wealth by chaebol owners to their children, saying their insider trading has been used by chaebol to maintain family control.
As part of efforts to speed up assaults on chaebol, Roh named Kim Jin-pyo, a taxation policy expert, to handle the country's economic affairs as deputy premier.
The chaebol have played a key role in achieving rapid economic growth for the past decades, but their reckless expansion with debt-splurging ways was widely blamed for exacerbating the financial crisis in 1997-98.
Many economists and civic groups welcomed the government investigation plan as a measure to improve corporate transparency and efficiency.
"A series of government measures are needed to enhance transparency in terms of ownership and governance, which will help conglomerates compete globally," said Kim Kyung-soo, a professor at Sungkyunkwan University.
But some analysts express concerns that government-led reforms can produce unwelcome side effects. "Reforms should be based on market principles, and be done in a gradual, self-regulating and long-term manner," said Cho Dong-keun, a Myongji University professor.
