South Korea Accuses DB Group of Concealing Affiliates to Preserve Family Control

Per a statement released on the 8th, the KFTC said it confirmed that DB Group failed to include multiple entities in materials submitted for the annual designation of large business groups. Each year, the KFTC classifies conglomerates based on affiliate data provided by companies, a process that determines whether groups are subject to restrictions such as limits on cross-shareholding.

According to a statement from the KFTC, two foundations—Donggok Social Welfare Foundation and Donggok Forest Culture Foundation—and 15 companies were omitted from DB’s disclosure. The companies named were Samdong Heungsang, Biltek, Neuron Engineering, Topserve, Comeland (formerly Samdong Land), Sangnok Steel, Pyeongchang City Bus, Gangwon Heungeop, Gangwon Ilbo, Gangwon Passenger Automobile, Donggu Farm, Yangyang City Bus, Daeji Farming, Dongcheol Packaging and Gumi Resources.

The regulator concluded that the group had used what it described as concealed affiliates over an extended period to maintain the controlling family’s dominance and to pursue private interests. Per a statement summarizing the investigation, the Donggok Social Welfare Foundation—excluded from the group in 1999—and its subsidiaries were utilized from at least 2010 in ways that supported the family’s control.

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According to the KFTC investigation, these affiliates were repeatedly mobilized in transactions aimed at strengthening and defending key subsidiaries such as DB HiTek and DB INC. In 2010, foundation-related companies reportedly borrowed large sums from DB Capital and purchased real estate held by DB HiTek to improve the chipmaker’s financial standing, despite the properties not being operationally required.

The commission also identified transactions suggesting that affiliate resources were used for the personal benefit of Chair Kim. In 2021, Kim borrowed 22 billion won from Biltek, an entity classified by the KFTC as a concealed affiliate. At the time, Biltek held 37.1 billion won in cash after selling real estate to DB HiTek, resulting in funds from an affiliate effectively flowing to the group’s owner.

In 2022, Biltek and Samdong Heungsan acquired a combined 1.1 percent stake in DB HiTek on Kim’s behalf, according to the findings, a move the regulator said was intended to help preserve his control over the conglomerate.

Based on these findings, the KFTC reported Kim to prosecutors on suspicion of violating the Monopoly Regulation and Fair Trade Act. The law stipulates that submitting false materials for the designation of business groups subject to mutual investment restrictions is punishable by up to two years in prison or a fine of up to 15 million won.

The referral comes six months after the KFTC reported Nongshim Chair Shin Dong-won in August last year on similar allegations.

Um Jandi, head of the corporate group management division at the KFTC, said, “DB’s sole concern was maintaining and expanding the controlling family’s power and pursuing private interests, and the foundation companies were nothing more than tools, as was laid bare.” She added, “High-level appointments and defense of management control are matters the same person directly decides or approves, making it impossible to plan and execute them without the owner’s knowledge.”

Source: Biz Chosun