Fines to be based on supplier payments even when violation amount is hard to calculate

Cooperation discount cut from 20% to 10%

New rules to apply if Coupang probe resumes

The Korea Fair Trade Commission will expand the use of proportional fines against large retailers that violate the Large-Scale Retail Business Act, scaling penalties to the size of the violation. Repeat offenders could face fines up to 100 percent higher than the base amount.

Coupang Inc, which recently refused to allow Fair Trade Commission investigators onto its premises and filed a lawsuit challenging the legality of the probe, would also be subject to the tougher penalty framework if violations are confirmed after the revised rules take effect.

Coupang Inc's headquarters in Songpa-gu, Seoul. [Yoon Chang-bin] Coupang Inc’s headquarters in Songpa-gu, Seoul. [Yoon Chang-bin]

The Fair Trade Commission announced Thursday that it will accept public comments on a proposed amendment to the enforcement decree of the Large-Scale Retail Business Act through Oct. 6, and on a related revision to its fine-imposition guidelines through Sept. 16.

The Large-Scale Retail Business Act prohibits retailers from passing promotional costs onto suppliers, forcing exclusive dealing arrangements and demanding access to suppliers’ business information.

The overhaul centers on broadening the use of proportional fines. Under the commission’s existing rules, proportional fines — scaled to the size of the violation — are the default, but fixed-amount fines are permitted as an exception when the violation amount or other key variables are difficult to calculate. A review of rulings under the act over the past decade found that fixed-amount fines were imposed in a significant share of cases for that reason.

To address this, the commission will restructure its fine-calculation process into two stages. When the violation amount can be determined, the fine will be calculated by multiplying that amount by the applicable rate. When the violation amount cannot be determined, the commission will not immediately fall back on a fixed fine — instead, it will multiply the “related supplier payment amount” by the applicable rate to arrive at a proportional fine.

The related supplier payment amount refers to the total value of goods a large retailer purchased from the suppliers involved in the violation during the period of the infringement, or an equivalent figure. A fixed fine of up to 500 million won ($362,000) will be used only when both the violation amount and the related supplier payment amount cannot be calculated.

The commission will also raise the fine rate. The current rate, which ranges from 60 to 140 percent of the violation amount depending on the severity of the infringement, will increase to a range of 80 to 200 percent, and the severity scale will expand from three tiers to four. A separate rate will also be introduced for cases where the fine is based on the related supplier payment amount rather than the violation amount, set at 1 to 10 percent of that figure depending on severity.

Fixed fine benchmarks will also rise. For serious violations, the range will increase from 200 million to 400 million won to 350 million to 450 million won. For very serious violations, the range will move from 400 million to 500 million won to 450 million to 500 million won.

Penalties for repeat violations will be toughened as well. Under current rules, fines can be increased by up to 50 percent based on the number of violations in the past three years and a weighting system. The amendment extends the lookback period to five years and raises the maximum surcharge to 100 percent. A company sanctioned once in the past five years with a weighted score of at least two points would face a surcharge of more than 40 percent and up to 50 percent. A company with four or more violations and a weighted score of at least seven points would face a surcharge of more than 90 percent and up to 100 percent.

Discounts for cooperation will also be reduced. The maximum reduction for cooperating with an investigation or review will be cut from 20 percent to 10 percent, and the maximum reduction for voluntary corrective action will be cut from 50 percent to 10 percent.

The revised rules are expected to apply to the ongoing Coupang Inc case, in which the commission and the company are disputing the legality of the on-site investigation.

The commission made four attempts to conduct an on-site investigation of Coupang Inc beginning Aug. 19 over allegations that it passed discount costs onto suppliers, but the company refused to cooperate each time. Coupang Inc filed a lawsuit seeking to nullify the commission’s investigation order and applied for a stay of execution; the commission withdrew its investigators after confirming the lawsuit had been filed.

The amendment’s supplementary provisions state that the revised decree will take effect on the date of promulgation, and that violations concluded before the effective date will be subject to the previous rules.

“If the amendment takes effect around the end of the year, the new fine framework cannot be applied to cases that were already closed before that date,” a commission official said. “But it can be applied to cases where an investigation is still under way at the time of implementation, or to new cases that arise afterward.”

This means that if the suspended Coupang Inc investigation resumes after the amendment takes effect, the new fine-calculation standards would apply. Because the penalty framework will have been tightened during the period when the investigation was halted — following Coupang Inc’s refusal to cooperate and its legal challenge — the company would face stricter standards than those currently in force.

The commission plans to review feedback from stakeholders and relevant government agencies during the public comment period, then complete the revision of the enforcement decree and guidelines within the year after clearing review by the Ministry of Government Legislation.

y2k@heraldcorp.com

This content was produced with the assistance of AI translation services.