South Korea’s Fair Trade Commission (FTC) is conducting on-site investigation at Hanwha Group’s head office in Seoul this week to look into the conglomerate’s alleged unfair practice of commissioning orders to affiliates to benefit owner family members, according to industry sources on Monday.

The antitrust watchdog is probing six units of the country’s eighth largest conglomerate Hanwha Group - Hanwha, Hanwha S&C, H-Solution, Hanwha Engineering & Construction, Hanwha Energy, and Bell Information Technology. It will reportedly run the on-site investigation until Friday.

Shares of Hanwha Corp., Hanwha Group’s holding company closed Tuesday 2 percent lower at 41,600 won ($38.96) apiece in Seoul trading.

The FTC suspects the conglomerate of having favored its unlisted IT solutions company Hanwha S&C through inter-affiliate business transactions.

Hanwha S&C had been entirely owned by Hanwha Group Chairman Kim Seung-youn’s three sons - the oldest son holding 50 percent and the two younger sons sharing the remaining half. In August, the group announced it was selling combined 44.6 percent Hanwha S&C stake held by the owner family members at 250 billion won.

After the news hit the market, industry watchers suspected that the Hanwha owner family was shedding their stake in the IT solution firm as a preemptive measure ahead of the government’s tougher regulation on large conglomerates’ unfair business practices. It is reported that Hanwha S&C earned 246.1 billion won or more than half of total 364.1 billion won revenue for full 2016 through inter-affiliate deals.

Last month, the FTC released best practice cases of the country’s large conglomerates that have made efforts to improve their ownership structure but it excluded Hanwha S&C despite its stake sale, saying that it was yet to decide whether Hanwha owner family sold their stake to cunningly circumvent government rules or to make the governance structure more transparent.

FTC refused to comment on the on-site investigation on Hanwha, citing it cannot release any information on a case still under investigation

By Seok Min-soo and Cho Jeehyun

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