Administrative Investigation Procedural Flaws in the Crosshairs... FTC vs. Companies: "Due Process" Fight Gains Momentum[Invest&Law]

Coupang, Hanwha Break with Longstanding Practice of Cooperation
Refuse On-Site Inspections and Orders to Submit Materials
Court Grants Hanwha's Application
Legal Community: "Fundamental Procedural Reform Is Urgent"
Respond to Indiscriminate Di

Companies are taking a completely different approach to responding to the Korea Fair Trade Commission's (KFTC) intensive on-site inspections. The longstanding practice of quietly complying with the KFTC's broad requests for materials is breaking down, with companies increasingly challenging the "procedural illegality" of its actions head-on, as seen in Coupang's outright refusal to allow an on-site inspection and Hanwha's application to suspend the effect of an order to submit materials. In particular, the Seoul High Court recently granted Hanwha's application, siding with the company and prompting analysis that the court has put a stop to the KFTC's excessive practice of interpreting its investigative authority too broadly.

Court "Suspends Effect" of Excessive Mobile Phone Seizure

According to legal sources on October 14, the Seoul High Court's Administrative Division 7, presided over by Judge Kwon Soonhyung, granted an application filed by Hanwha and its employee A to suspend the effect of an order to submit materials issued by the KFTC on September 9. As a result, the order the KFTC imposed on Hanwha will remain suspended until January 31, 2027.

The case arose in July, when the KFTC was investigating allegations of internal transactions involving fees for the use of Hanwha's corporate brand. According to Hanwha, an KFTC investigator directly handled an employee's mobile phone and read text messages on its screen. The investigator then kept the phone in the inspection room for an extended period without even providing a custody record. An employee's personal mobile phone contains not only routine work-related material but also sensitive information, including private conversations, third-party information, and trade secrets. Despite this, when the employee refused to submit the text messages, the KFTC reportedly issued a separate order to submit materials, demanding a USB drive containing screenshots. Hanwha challenged the order, and the dispute ultimately went to court.

The panel sided with Hanwha, saying, "The KFTC's action could cause Hanwha harm that would be difficult to remedy, and there is an urgent need to suspend its effect to prevent such harm."

Law Firms: "KFTC Arbitrarily Interprets the Scope of Its Investigative Authority"

The court's decision has amplified calls in legal circles for a fundamental overhaul of the procedures governing KFTC on-site inspections. While criminal investigations by prosecutors are subject to judicial oversight through search and seizure warrants issued by courts, the KFTC's on-site inspections are administrative investigations, leaving companies entirely reliant on challenging their legality after the fact. As a result, critics say, the scope of administrative investigative authority is interpreted too broadly, leading to repeated procedural violations, such as obtaining unrelated information from internal networks or personal mobile phones.

A lawyer who has represented companies during KFTC on-site inspections said, "Investigators often cite just one legal provision concerning unfair support in the inspection notice, then inspect the entire company network as if they were conducting an unlimited compulsory investigation, saying, 'We don't know what we'll find, so we'll search everything.'" Another lawyer said, "It is also common for the KFTC to exert pressure by making broad requests for materials and then extending the inspection period by a week at a time if the company does not provide them," adding, "In effect, it's conducting a compulsory investigation without a warrant." A competition law specialist at another law firm said, "Law firms have recently been actively adding legal arguments related to the constitutional freedom of communication and the protection of communications secrets to their responses to the KFTC's indiscriminate digital forensics and other practices."

Companies argue that these KFTC investigative practices directly contradict Supreme Court precedents. In a past case, a KFTC investigator sought access to Samsung Electronics' entire internal computer network. After the company refused, the KFTC imposed an administrative fine. In August 2010, the Suwon District Court's Civil Appeals Division 4, presided over by Judge Baek Kangjin, overturned the fine, ruling that "an unlimited request to inspect an entire computer network is not an investigation confined to the minimum necessary scope, but an act closer to a search requiring a warrant." The ruling was later upheld by the Supreme Court.

Challenges to Procedural Defects in Administrative Investigations Gather Pace

Despite these procedural concerns, companies have until now found it difficult to challenge the KFTC in court for violating due process, partly because they have had to consider their relationship with the agency. One reason is the practice of signing an "inspection process confirmation form" prepared at the scene at the KFTC's request. However, the current Monopoly Regulation and Fair Trade Act allows for criminal penalties for obstructing or delaying entry to a site, or failing to comply with an order to submit materials. Whether a company's consent, given under the threat of severe penalties for refusal, can truly be considered "fully voluntary" remains a matter of debate.

Recently, however, more companies have begun to openly challenge this practice. In one case, when a KFTC investigator demanded access to an entire shared folder, the company refused. When the investigator then asked the company to prepare an "inspection refusal confirmation form," it included in the form a reference to a court precedent and stated that it refused because it understood the request to be an unlimited demand to inspect materials that had not been specified. A lawyer said, "Following the case involving Coupang's refusal to submit materials, companies are increasingly likely to shift away from unconditional compliance with KFTC demands toward a position of cooperating when requests are made in accordance with the rules and refusing requests that go beyond them."

A tax specialist at a major law firm said, "Tax audits, too, used to involve the indiscriminate seizure of books and computers. But as rulings recognizing procedural illegality, including duplicate audits, led to the cancellation of tax assessments, the procedures under the Framework Act on National Taxes were significantly modernized." He added, "By comparison, the investigative and due process provisions of the Monopoly Regulation and Fair Trade Act are extremely rudimentary compared with those of the Criminal Procedure Act or tax laws. Since it is a lawyer's role to demonstrate that due process matters as much as the legitimacy of the outcome, related disputes will intensify."

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