Fair Trade Commission launches sanctions process against SM Group affiliates over alleged business diversion, illicit support

Affiliates of SM Group, a conglomerate operating in the shipping and construction sectors, have been placed under sanctions review by the Korea Fair Trade Commission over allegations that they funneled business opportunities and financial support to companies owned by the controlling family.

The FTC secretariat said Monday it had sent examination reports to six SM Group affiliates — SMAMC Investment Finance, Samwhan, SM Lines, SM Hi-Plus, HN E&C and Samra Midas — recommending sanctions for alleged violations of the Fair Trade Act.

An FTC examination report summarizes the findings of an investigation and sets out recommended sanctions, functioning as the equivalent of a criminal indictment in the administrative process. Once delivered to the respondents, it triggers a formal deliberation on whether to impose penalties.

The commission sent separate examination reports — one in November last year covering the alleged diversion of business opportunities, and another in May this year addressing allegations of improper financial support.

SMAMC Investment Finance and Samwhan are accused of transferring an apartment development project in Seongjeong-dong, Cheonan, South Chungcheong Province, to HN E&C in December 2022. At the time, HN E&C was wholly owned by the second daughter of SM Group Chairman Woo Oh-hyun, and the FTC determined the project was a promising venture expected to generate substantial profits.

SM Lines and SM Hi-Plus are suspected of providing improper benefits to HN E&C by lending development funds at interest rates roughly 20 to 30 percent below market rates.

Separately, SM Lines is also accused of extending similar support to Samra Midas, a company in which Chairman Woo and his son hold stakes. Woo is reported to own 74 percent of Samra Midas, with the remainder held by his son.

The FTC found that HN E&C generated approximately 128.3 billion won (about $83.6 million) in pre-sale revenue and around 36.5 billion won in pre-sale profit from the apartment development project. The total value of the alleged improper support was estimated at approximately 18.2 billion won — about 1.75 billion won directed to HN E&C and 16.4 billion won to Samra Midas.

FTC examiners concluded that the conduct violated Article 47 of the Fair Trade Act, which prohibits the provision of improper benefits to specially related persons. The examination report accordingly recommends corrective orders, fines and criminal referrals of the corporations and individuals involved.

However, the examiners declined to specify which individuals had been named for criminal referral.

The FTC will proceed through written submissions, evidence review and oral hearings before reaching a final decision at a full commission meeting. The commission has not yet set a date for the deliberation but expects to take up the case before the end of the year.