"End to slap-on-the-wrist penalties for disclosure violations"... KFTC to impose 50% higher surcharges after 3 repeat violations

Amendments to surcharge notice take effect on Nov. 9
Sharp increase in surcharge rates for repeat violations

The Korea Fair Trade Commission (KFTC) has moved to strengthen sanctions, sharply raising the surcharge rate for repeated violations of disclosure obligations by large business groups and others to as much as 50%, while completely eliminating unreasonable practices of granting reductions.

The KFTC said on November 3 that it will implement the amendments to the “Standards for Imposing Surcharges in Cases Involving Violations of Disclosure Obligations Regarding Material Matters by Companies Affiliated with Business Groups Subject to Disclosure” and the “Standards for Imposing Surcharges in Cases Involving Violations of Board Resolution and Disclosure Obligations for Large-Scale Internal Transactions and Other Matters” starting November 9.

The key aim of the amendments is to significantly strengthen the punitive measures for frequent disclosure violations. Previously, increased penalties applied only after four or more violations within the past five years, and the maximum surcharge increase was just 20%, prompting criticism that the sanctions were ineffective. In fact, more than 50 companies were found to have repeatedly violated disclosure obligations at least twice in the past five years. In response, the KFTC raised the penalties so that surcharges increase by 10% for one repeat violation, 30% for two repeat violations, and 50% for three or more repeat violations. It also revised the criteria to exclude violations detected in the year of an inspection when calculating the number of repeat violations, ensuring greater logical consistency in the sanctions.

Various benefits that had undermined the effectiveness of surcharges have also come under scrutiny. The KFTC completely removed the provision that reduced surcharges by 20% to as much as 75%, depending on the number of days a disclosure was delayed. For example, when a large-scale internal transaction is disclosed late, KRW 100,000 is added to the base amount for each day of delay. The KFTC determined that applying an additional reduction based on the length of the delay would contradict the purpose of the increase by offsetting its effect. The 20% reduction previously granted for a first violation or for companies with no violation record in the past five years will also be eliminated. This measure is intended to prevent surcharges from being reduced by as much as 70% when that reduction is combined with the 50% reduction granted for violations occurring immediately after a business group is newly designated as a group subject to disclosure.

The cap on surcharges for small companies is also being abolished. The previous notice limited the base surcharge to no more than 1% of whichever was greater: a company’s capital or total equity. However, the KFTC took into account criticism that setting a cap at the base-amount calculation stage amounted to a duplicate reduction, given that the violating company’s financial condition is already considered when the final surcharge is determined.

The amended surcharge notice is scheduled to take effect on November 9. The KFTC said, “The previous notice will apply when the disclosure deadline falls before the effective date,” adding, “We expect these amendments to encourage companies to faithfully fulfill their disclosure obligations and ensure transparency in the ownership and control structures of business groups, thereby strengthening market oversight and helping effectively prevent the unfair concentration of economic power.”

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