South Korea’s antitrust agency has launched an investigation into allegations that Daelim Group, a major construction and petrochemical conglomerate, may have funneled work to affiliates, a practice the new liberal government is determined to crack down on as part of its broad conglomerate reform.

According to government and industry sources, Fair Trade Commission (FTC) officials on Monday raided the offices of Daelim Corporation on suspicions that is has directed work to its sister companies under the group without any tendering.

The raid comes after the antitrust watchdog’s preliminary probes on possible work funneling practices found a series of suspicious internal transactions linked to Lee Joon-yong, honorary chairman of Daelim Industrial Co.

In a recent interview, FTC chief Kim Sang-jo revealed that the preliminary study has uncovered violations from a double-digit number of conglomerates and that suspected companies would be subject to a full-scale probe from the financial authorities staring this month.

Following the raid, Daelim has become the first company to come under the FTC’s investigations over alleged internal trading in the country’s family-run chaebol company since liberal President Moon Jae-in took office in May. President Moon has vowed to reform chaebol conglomerates that have long been criticized for their poor corporate governance, like internal transactions, that often hinder fair competition in the market.

Daelim Group consists of many business units with holding company Daelim Industrial at its center. But it is through Daelim Corporation, which has a 21.7 percent stake in Daelim Industrial, that owner families effectively control the entire group, according to industry sources.

Lee and his family members hold a 52.3 percent stake in unlisted Daelim Corporation, making it the centerpiece of the group’s corporate governance. The de facto holding entity has rapidly grown after merging with Daelim I&S, an IT outsourcing unit, and Daelim H&L, a logistics affiliate. Civic organizations criticized the merger as Daelim’s attempt to evade work funneling allegations as the Lee family held a large equity stake in the two companies. Their stakes in Daelim Corporation swelled as a result of the merger.

By Seok Min-soo

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