South Korea’s antitrust regulator on Thursday included Coupang on its list of “large business groups,” henceforth imposing heavier corporate disclosure and compliance obligations on the e-commerce operator that had previously remained in the startup arena.

The platform’s founder and chief Kim Bom-suk, however, was not deemed the de facto controlling shareholder on the basis of his US citizenship, rekindling skepticism on the validity of the current regulatory framework.

The Fair Trade Commission said Thursday that it will designate 71 business units with assets worth 5 trillion won ($4.5 billion) or more as “large business groups” that are subject to special corporate disclosure, starting May 1.

The FTC’s annual list is largely equated with the definition of conglomerates, or chaebol in Korean, as the corresponding business groups face tightened regulations under the Monopoly Regulation and Fair Trade Act, in consideration of their market monopoly and power abuse potentials.

Debates have been active for a while on whether Coupang should be classified as a conglomerate, as its total assets soared from 3.1 trillion won to 5.8 trillion won last year.

A foremost hurdle that Coupang is likely to face down the road is the strengthened control on insider trading. Having built up its business on the e-commerce platform, Coupang currently has eight affiliates under its wing. The logistics, mobile pay, and private label businesses are all closely connected to the e-commerce activities, creating trillions of transactions per year within the group.

While viewing the e-commerce champion as a conglomerate, the FTC refrained from officially designating Kim as the “same person” as the business itself, in other words, the controlling shareholder.

The term “same person” under the FTC system refers to the person who holds the controlling power over the business and may thus be deemed to be in an equal position with the group itself.

The idea, however, has been faced with some market backlashes as in many cases, the designated “same person” differed from the actual person in charge, due to the complicated corporate succession within owner groups.

Earlier this year, the FTC changed the same person for automaker Hyundai Motor Group to newly seated Chairman Chung Euisun, after Honorary Chairman Chung Mong-koo delegated all of his voting rights to his son.

In the case of textiles and chemicals manufacturer Hyosung Group, the controlling shareholder was changed from Honorary Chairman Cho Seok-rae to his son and incumbent Chairman Cho Hyun-joon.

The watchdog, while admitting some loopholes in the current regulatory system, said that Kim may not be named the controlling shareholder due to his nationality.

“It is obvious that CEO Kim is in effective control of Coupang here,” said the FTC’s Vice Chairman Kim Jae-shin in a briefing.

“(But) we had to consider past cases, the defects in the incumbent system and the range of affiliates,” he added, explaining the reason for excluding Kim from the list of conglomerate chiefs.

In the case of foreign businesses operating in Korea, the conventional practice has been to designate the top business unit as the “same person” of the group, according to the FTC. For instance, local affiliate S-Oil is currently the same person for oil giant Saudi Aramco and GM Korea for its global headquarters General Motors.

Coupang is headquartered in Korea and incorporated in the US state of Delaware. It is controlled by Kim, who holds 10.2 percent in US Coupang Inc. and 76.7 percent of voting rights.

“As of now, Chairman Kim does not own any other company in Korea, whether in his name or that of his family members,” the FTC vice chairman said.

“Possibilities are low that he may create a new business at this point or create a monopoly issue with a business unit controlled by a relative.”

The vice chairman also added that the designation of the same person is a legal practice that may be subject to legal disputes, explaining the FTC’s conservative approach.

But the FTC’s stance has led to mixed backlash. While business lobby groups have taken the opportunity to blame the conglomerate regulatory framework itself, liberal civic groups complained over the “lenient” decision for Kim, who is actually already a conglomerate owner.

The Federation of Korean Industries issued a statement earlier this week to question the FTC’s conglomerate monitoring system.

“The designation of large business groups was created in the past when our nation was under a closed economy, and no longer fits today’s economic and social reality,” the FKI said.

It also blamed the excessive and discriminative level of regulations and sanctions imposed on those included on the conglomerate list.

According to the business representation, the nation’s top 30 business groups accounted for 37.4 percent of the nation’s economy in 2012, but the figure dropped to 30.4 percent in 2019, indicating diversification of the market.

The Citizens Coalition for Economic Justice, on the other hand, claimed that the FTC’s decision would encourage business owners to acquire foreign nationality to evade the rule of law here.

By Bae Hyun-jung (tellme@heraldcorp.com)