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CJ CGV fined for awarding lucrative deal to chairman's brother

All News 17:45 September 29, 2016

SEJONG, Sept. 29 (Yonhap) -- South Korea's antitrust watchdog said Thursday that it has imposed a fine of 7.17 billion won (US$6.5 million) on CJ CGV, the country's largest cinema chain, for awarding a lucrative deal to its affiliate headed by the younger brother of CJ Group Chairman Lee Jay-hyun.

The Fair Trade Commission also said it has referred CJ CGV to the prosecution for further investigation.

CJ CGV is accused of terminating advertising deals with its existing business partner and awarding the lucrative deals to JS Communications after the affiliate of CJ Group was set up in 2005.

The movie chain gave fees -- which are 25 percent higher than the ones awarded to the previous business partner -- to JS Communications, which is 100 percent owned by Lee's younger brother Lee Jae-hwan.

The FTC said CJ CGV unfairly gave 10.2 billion won to JS Communications from 2005 to 2011.

CJ CGV halted its unfair financial support to JS Communications and lowered the fees by 16 percent after it was probed by the country's tax authorities in 2011.

CJ CGV said it "respects the judgment of the FTC," though it added that it is regrettable that the antitrust watchdog did not accept its explanation that it rectified the practice on its own by lowering fees.

JS Communications lowered the debt ratio to 110 percent from 1,027 percent and increased its market share to 59 percent from 33 percent during the period.

The current law forbids inter-affiliate trading within a business group whose owner and family hold more than 30 percent of the shares in an affiliate. Such trading is blamed for allowing owner families easy and high profits by having subsidiaries award lucrative contracts to each other, undermining the principle of fair competition.
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