Tighter regulations on undue cross-affiliate deals to ignite backlash in Korea

August 28, 2013 Leave a comment

Tighter regulations on undue cross-affiliate deals to ignite backlash
By Jeong Suk-woo

2013.08.28 11:32:51

The South Korean government decided to regulate unjust transactions among units of conglomerates that benefit families who own them. The Fair Trade Commission (FTC) is mulling targeting subsidiaries where conglomerates’ owner or his/her families have a 20 percent or more stake. The percentage is lower than the previously known 30 percent, suggesting more companies will be put under scrutiny. Consequently, it is expected to trigger backlash from businesses. A revision to the “monopoly and fair trade act,” which has incorporated such regulation, was approved during a regular session of the National Assembly on July 2, and the government will soon have a public feedback period, said senior government officials Tuesday. The revised legislation added a new provision which prohibits providing fraudulent profits to conglomerate owner or his/her families. Under the current law, companies can be punished for intra-subsidiary transactions only when the deals involve trading goods or services at a price or in quantity far more favorable than market conditions, or an act of ‘competition restriction.’  But the revised law bypasses the requirement to prove the “competition restriction” in penalizing any intra-subsidiary transaction from which conglomerate owners’ families earned unfair gains at the expense of hurting companies or shareholders.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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