Samsung Life faces possible probe over violating shareholder law

Asia's Tech News Daily

Samsung Life faces possible probe over violating shareholder law

Samsung Life Insurance’s headquarters in southern Seoul / Yonhap

By Kim Bo-eun

Samsung’s life insurance unit, currently facing punitive measures by financial authorities for violating shareholder regulations, could come under review for a penalty by the country’s top antitrust regulator on the same allegation.

The Korea Fair Trade Commission (KFTC) said Monday it is considering whether to open a probe into Samsung Life Insurance for allegedly providing improper benefits to another affiliate.

“We received filings by a local civic group last week and we are currently reviewing whether we will launch a probe into the allegations,” a KFTC official said.

The civic group Solidarity for Economic Reform filed the request with the watchdog last week.

Samsung’s life insurance unit is suspected of exempting IT service provider Samsung SDS from paying indemnities for failing to complete a 156 billion won project on time.

Samsung Life faces possible probe over violating shareholder law

Samsung Life Insurance CEO Jeon Young-muk / Courtesy of Samsung Life Insurance

Samsung Life signed a 156.1 billion won contract with Samsung SDS back in 2015, requiring the latter to set up an enterprise resource planning (ERP) system to manage business processes. According to the contract, Samsung SDS was to finish the project by April 2017. But it was not completed until October of that year.

Samsung Life failed to file 15 billion won in indemnities against Samsung SDS for the delay in setting up the system.

Financial authorities determined that Samsung’s life insurance affiliate decided to sustain losses for the benefit of Samsung SDS. Samsung Life owns stakes in Samsung SDS.

This is seen as a possible violation of regulations that limit transactions by major shareholders. The Financial Supervisory Service (FSS) in December 2020 concluded that heavy sanctions should be imposed on Samsung Life for the move, in addition to other issues concerning insurance payments.

The FSS also said that Samsung Life should pay nursing home fees to holders of its cancer insurance policies, but the company’s stance is that these expenses are irrelevant according to the terms of its policy. Other cases that have been forwarded for sanctions concern insurance payments for accidental deaths and survivorship annuity.

The Financial Services Commission (FSC) is the entity that finalizes sanctions on financial firms, but has yet to reach a conclusion, despite a full year having passed since the FSS forwarded its proposal.

“The subcommittee within the FSC is continuing a review on the legal aspects of sanctions,” an FSC official said. “It is taking some time given the complicated nature of the allegations.”

The official said the committee has convened nine meetings so far, but has yet to decide when the next meeting will be held. It is rare for the FSC’s committee to take more than a few months to reach a conclusion regarding sanctions on financial firms once the FSS forwards its view. A top court ruling in September 2020 has only complicated matters, as the court sided with an insurer in a legal dispute with a group of claimants.

“It is highly likely that Samsung Life not filing indemnities against Samsung SDS applies as a malpractice of providing benefits for an affiliate company according to the Fair Trade Act, which is separate from the company having sanctions imposed upon it by financial authorities,” Solidarity for Economic Reform said.

“We urge the KFTC to thoroughly investigate the transactions between Samsung Life and Samsung SDS to confirm whether there was in fact malpractice of providing of benefits to an affiliate company, and we urge for a strict penalty to be imposed in the case that this is determined to be a violation of the law,” the civic group added.

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