Corrupt Korean Officials Went After American Companies
It’s Hard to See Sleaze on the Other Side of the World, but it Affects U.S. Companies Big Time
Did anybody notice that? I mean, over here in the United States? They noticed it in Korea, where the action is mostly taking place. On the other side of the planet, for your reviewing pleasure, is a veritable font of corruption, a geyser so deep-rooted within the earth that it goes back several administrations. And it connects in a material way with the fortunes of American companies.
So, what did the Korean authorities in Seoul do? For one, they searched the home and office of, Jeong Jae-chan, the guy who ran the Korean Fair Trade Commission (KFTC) from December 2014 until June 2017, and his deputy Kim Hack-hyun — not once, but twice.
The first time was just a quick pass through to find material related to the trial, eventual conviction, and prison sentence of Lee Jae-yong, the heir to the Samsung group, who got rolled up in the high-profile and well-justified investigation into the country’s President at the time, Park Geun-hye, who is still languishing in Seoul Detention Center for her part in a graft scandal that brought down her government in 2017.
The second search of was more focused. Authorities were looking for evidence that top management at the KFTC had violated the Public Service Ethics Act by placing retiring officials at large companies that the commission was supposed to be monitoring. They were also looking for evidence that “some FTC officials unfairly handled antitrust cases involving conglomerates,” according to Yonhap News Agency. As prosecutors looked back into a decade of history at the KFTC, they found an organization that operates almost entirely on grease. Based on their investigations, the Seoul Central District Court issued arrest warrants for former Chairman Jeong and former Vice-Chairman Kim, who remain in custody.
The reason that this whole Korean soap opera matters over here is that Jeong and Kim set out to harass, convict, and fine U.S. companies. And it appears that the standards they used to reach their conclusions were anything but objective. They were small minds executing a small-minded agenda. But real companies got hurt, and they shouldn’t have been.
In December 2016, the KFTC fined Qualcomm $854 million, its largest ever penalty, for what it called “antitrust” violations related to chips sales and licensing. Qualcomm was frankly baffled by the decision, which on the face of it made no sense, and is appealing the ruling in the Seoul High Court. Although initially Samsung, the national technology champion that accounted for 17% of the Korean GDP in 2013, sided with the commission, Samsung settled with Qualcomm recently, withdrawing its support for the KFTC case and signing a wide-ranging cooperation agreement that covers the rollout of 5G, the next generation mobile technology. In theory, the KFTC suit was designed to protect Samsung, but the Korean colossus can take care of itself just fine.
Microsoft ran into a similar problem in 2006, when the KFTC rejected the software maker’s appeal in an analogous case and fined the company $35 million (not including private payouts to the supposedly injured parties of nearly $800 million).
Viewed down at the human scale, some of the details of the wholesale corruption at the KFTC are almost poignant. For example, Kim appears to have contacted senior officials at Hyundai Motors Group, seeking employment for his son and daughter. But this direct pathway from the public to the private sector — in violation of Korean law, which requires a three-year hands-off period — was a veritable conga line of aging officials.
At this point, many former KFTC officials as well as business executives are also being implicated in the scandal. Only a seven-year statute of limitations is preventing prosecutors from looking further back in time. And you know they’d find plenty if they did.
Trust in the KFTC as an institution is collapsing. Antitrust in Korea is in disarray. Observers don’t know what to expect. It turns out that former KFTC officials placed in industry were communicating confidential information back and forth between their former and existing employers to the benefit of either or both, depending on the circumstances.
Yes, shenanigans have abounded at the KFTC. Real companies have been getting hurt. The United States and Korea have a free trade agreement, but the KFTC has been thumbing its nose at the provisions and ignoring due process.
It will be up to the appeals process to set some of these gross miscarriages of justice to rights.