The Fair Trade Commission (FTC), the nation's anti-trust watchdog, has imposed corrective orders and a provisional fine of 510 million won ($370,504) on HNG, a subsidiary of Kolmar BNH, for providing improper support to KB Lab, headed by a member of the owner family.
HNG, an OEM and ODM specialist under Kolmar BNH, was found to have supported KB Lab, which sells the self-developed cosmetics brand LabNo.
KB Lab, established in Aug. 2016 with a capital of 200 million won, became a wholly-owned subsidiary of HNG.
Notably, in September 2018, Yoon Yeo-won, the daughter of Kolmar Group Chairman Yoon Dong-han, acquired all shares of KB Lab for just 100,000 won, making it a company owned by a special affiliate.
According to the FTC, Yoon devised a support plan through HNG for KB Lab and had a long-term plan to increase its value through an initial public offering (IPO) if the company grew.
As a result, HNG dispatched up to 15 of its employees to KB Lab from its establishment in Aug. 2016 until May 2020, covering approximately 900 million won in labor costs.
Notably, before Yoon acquired the company, KB Lab operated entirely with dispatched employees from HNG from 2016 to 2018. Even after the acquisition, 87.5 percent of KB Lab's workforce consisted of HNG's dispatched employees.
The FTC concluded that KB Lab secured professional personnel from HNG without effort, thus gaining an advantage over competitors.
"KB Lab's revenue dramatically increased from 42 million won in 2016 to 2.5 billion won in 2019, a more than 60-fold increase over three years," the FTC said. "Consequently, HNG has been fined 406 million won, while KB Lab must pay a fine of 104 million won."
However, considering the relatively small scale of the unfair support and the fact that the intended outcomes, such as the IPO, were not achieved, the FTC decided not to file a criminal complaint against CEO Yoon for personal gain.
"This action underscores the importance of detecting and sanctioning unfair support practices in medium-sized business groups, where regulatory measures on large conglomerates may not apply, allowing such support to be more covertly executed," the FTC said in a statement. "The FTC is committed to monitoring unfair practices not only in large conglomerates but also within medium-sized business groups and vows strict penalties for any violations found."
Regarding the matter, an HNG representative commented that this incident occurred before the company established a formal process for outsourced tasks.
"We will strive to ensure that such issues do not arise in the future," the official said.