Administrative

Unfair Internal Transaction Lawyer

Unfair Internal Transaction Lawyer | Understanding related-party deal risk and building a defense

Summary

An 'unfair internal transaction' refers to a transaction between affiliated companies within a corporate group that unfairly helps a specific affiliate maintain or strengthen its market position, or that provides economic benefit to a controlling family member without justification (공정거래법 제45조 제1항 제9호, 제47조). Even a transaction that looks like ordinary business between related companies can be treated as illegal support if the price, volume, or terms departed significantly from what would be normal between independent parties. Because the Fair Trade Commission examines years of internal data, board minutes, and contracts, the earlier a company reviews its own transaction structure with counsel, the more options remain for a defense.

Administrative · Antitrust Applicable law: Fair Trade Act (공정거래법) FTC Investigation Corporate Group Compliance

Unfair Internal Transaction | What Counts as an Unfair Internal Transaction

The Fair Trade Act (공정거래법) regulates two related but distinct categories: general 'unfair support' between affiliates, and special provisions targeting benefits flowing to a controlling shareholder's family members in large corporate groups. Each has its own elements the FTC must prove.

Art. 45(1)(9)

Unfair Provision of Support (부당지원행위)
This applies when a company trades with an affiliate on terms markedly more favorable than normal market conditions - in price, interest rate, deposit terms, or transaction volume - in a way that helps the affiliate maintain or strengthen its market position (공정거래법 제45조 제1항 제9호). The key dispute is almost always whether the 'normal transaction terms' benchmark used by the FTC is actually comparable to the deal in question.

Art. 47

Benefiting Specially Related Persons (특수관계인에 대한 부당한 이익제공)
For companies belonging to a large corporate group subject to disclosure obligations, this provision separately prohibits transactions that provide unfair economic benefit to the controlling family or affiliates in which they hold significant equity (공정거래법 제47조). This was introduced specifically to address 'tunneling' concerns and applies a lower threshold than ordinary unfair support.

Enforcement Decree

Safe Harbor Thresholds
The Enforcement Decree sets certain quantitative thresholds (e.g., transaction size relative to the affiliate's revenue) below which a transaction is presumed not to fall under Article 47, but these safe harbors are narrow and do not apply to Article 45(1)(9) support review at all.

Burden of Proof

Reasonable Business Purpose Defense
Even where terms deviate from market norms, a transaction may be defended if there was a legitimate business necessity - for example, securing a stable supply chain, meeting urgent operational needs, or industry-specific circumstances - and the FTC and courts weigh this against the degree of benefit conferred.

Practical Note on Scope

Determining what is 'normal' requires comparable market transactions, and in many industries there is no clean external benchmark - internal pricing between affiliates is common practice. This ambiguity is exactly where most disputes with the FTC arise, and it is also where a well-documented internal transaction policy can make the difference in a later investigation.

Unfair Internal Transaction | How an FTC Investigation Into Internal Transactions Unfolds

Unlike a typical cartel case, internal transaction investigations usually begin with a routine large-group disclosure review or a tip, not a raid. But once triggered, the scope of document requests can be extensive.

Trigger Points

Investigations commonly start from the FTC's periodic review of large corporate group disclosures, a whistleblower report, or data flagged during an unrelated merger review. Because affiliated companies must report certain internal transactions above disclosure thresholds, inconsistencies in these filings are a frequent trigger.

Scope of Document Requests

Once opened, the FTC typically requests several years of contracts, board and internal committee minutes, pricing comparison data, and email communications between the affiliates involved. Companies that cannot readily produce comparable market pricing data at this stage are at a significant disadvantage in framing the 'normal transaction terms' argument.

Statement of Opinion and Hearing

Before a final decision, the FTC issues a statement of examination results and gives the company an opportunity to submit a written opinion and appear before the Fair Trade Commission's deliberative body. This is usually the last practical opportunity to influence the outcome before a formal resolution is issued.

Unfair Internal Transaction | Common Patterns the FTC Scrutinizes

Not every affiliate transaction is risky, but certain recurring patterns draw closer attention because they were the basis of past enforcement actions.

Preferential Pricing and Volume Concentration

Selling or purchasing goods and services at prices consistently better than what unrelated third parties receive, or directing a disproportionate share of group work to one affiliate (e.g., IT services, logistics, advertising), is one of the most frequently sanctioned patterns.

Financing-Type Support

Loans, guarantees, or deposits between affiliates at interest rates or terms more favorable than the market would offer can constitute support even without any transfer of goods, because the benefit is the financing cost differential itself.

Real Estate and Asset Transactions

Sale, lease, or use of real estate or intangible assets between affiliates at non-market rent or price is another recurring category, particularly where a smaller affiliate benefits at below-market terms from a larger group company.

New Business Opportunity Allocation

Steering a newly created business opportunity toward an affiliate owned significantly by the controlling family, rather than putting it out for open bidding, is a pattern specifically targeted by Article 47's provisions on benefiting specially related persons.

Unfair Internal Transaction | What Happens After a Finding of Violation

The consequences of a finding extend beyond the company itself and can reach individual executives, which is why companies often need parallel corporate and individual defense strategies.

Corrective Order and Surcharge

A finding typically results in a corrective order requiring the company to cease the conduct and, separately, a surcharge calculated based on the revenue or benefit connected to the violation (공정거래법 제49조, 제50조). The surcharge calculation methodology itself is often contested in follow-up litigation.

Public Disclosure and Reputational Effect

FTC decisions on large corporate groups are published, and a finding of unfair support can affect the company's standing in public and private bidding, credit assessments, and ongoing regulatory relationships even after the surcharge is paid.

Potential Criminal Referral

In more serious cases, the FTC can refer the matter to the prosecution, exposing the company and responsible executives to criminal liability under the Fair Trade Act's penal provisions, in addition to the administrative sanctions already imposed.

Administrative Litigation Options

A corrective order or surcharge decision can be challenged before the Seoul High Court through an action to revoke the administrative disposition, and this litigation path often turns on re-examining the FTC's chosen comparison group for 'normal transaction terms.'

⚠ Time Limits on FTC Action

The FTC's authority to impose corrective measures or surcharges for a given violation is generally subject to a statutory period, so the age of a transaction can itself become a defense issue worth reviewing early with counsel.

Unfair Internal Transaction | From Initial Review to Resolution

Initial Consultation and Document Review
We review the disclosure filings, contracts, and internal communications related to the transaction at issue to identify the actual points of exposure before any FTC contact is made.

Response to FTC Document Requests
We help prepare and organize responses to investigation requests, including assembling comparable market pricing data to support a 'normal transaction terms' argument where applicable.

Opinion Submission and Hearing Preparation
Once the FTC issues its statement of examination results, we prepare a written opinion and represent the company at the hearing before the Fair Trade Commission's deliberative body.

Post-Decision Strategy
If a corrective order or surcharge is issued, we assess whether an administrative appeal or revocation lawsuit is warranted based on the strength of the surcharge calculation and comparison methodology used.

Compliance Structuring
Where appropriate, we advise on internal transaction approval processes and documentation practices going forward to reduce recurrence risk for the corporate group.

Unfair Internal Transaction | How Fees Are Determined

Retainer Fee
Set based on the complexity of the transaction structure under review, the number of years and affiliates involved, and the stage at which we are engaged (pre-investigation review versus active FTC investigation).

Success Fee
If applicable, discussed separately depending on the outcome sought - for example, avoidance of a corrective order, reduction of a surcharge amount, or a favorable result in a revocation lawsuit.

Litigation-Stage Fees
If the matter proceeds to an administrative revocation lawsuit before the Seoul High Court, fees for that separate proceeding are set based on the surcharge amount at stake and the volume of comparative data analysis required.

Disbursements
Costs such as expert economic analysis for market benchmarking, document translation, and court or filing fees are billed separately as actual expenses incurred.

※ Costs vary depending on case complexity and specific circumstances; exact fees will be provided during consultation. No specific outcome is guaranteed.

Unfair Internal Transaction | Self-Check Before Contacting Counsel

1️⃣ For Companies Facing an FTC Document Request

Have you received a formal request for materials, and do you know exactly which transactions and time period it covers?
Can you locate comparable market pricing or terms for the transaction being questioned?
Are the relevant board or committee approval records for the transaction complete and consistent with the contract terms?
Have any executives already given informal statements to investigators without counsel present?

2️⃣ For Companies Reviewing Their Own Group Structure Proactively

Do you know which of your intra-group transactions exceed the large corporate group disclosure thresholds?
Is there a documented business justification on file for transactions with more favorable terms than market rate?
Does your group have a formal internal transaction approval and pricing review process?
Have prior years' related-party transactions been reviewed by counsel or only by internal accounting?

3️⃣ After Receiving a Statement of Examination Results

Do you understand exactly which legal provision (Article 45(1)(9) or Article 47) the FTC is applying?
Have you identified the specific benchmark transactions the FTC used to define 'normal terms'?
Is there a realistic argument for legitimate business necessity that has not yet been documented in writing?
Have you calculated the potential surcharge range based on the FTC's typical calculation method?

Frequently Asked Questions

Q. What exactly counts as an 'unfair internal transaction' under Korean law?

A. It generally refers to a transaction between affiliated companies in a corporate group where the terms depart significantly from normal market conditions in a way that helps a specific affiliate maintain or strengthen its market position, or that unfairly benefits a controlling family member (공정거래법 제45조 제1항 제9호, 제47조). Whether a specific deal qualifies depends heavily on what comparable 'normal' terms would have looked like.

Q. Is every transaction between affiliated companies automatically suspicious?

A. No. Ordinary business transactions between affiliates at market terms are common and lawful. The issue arises specifically when pricing, volume, or terms deviate meaningfully from what unrelated companies would agree to, without adequate business justification.

Q. What triggers an FTC investigation into internal transactions?

A. Common triggers include periodic review of large corporate group disclosure filings, whistleblower reports, or data surfaced during an unrelated FTC review such as a merger filing. Discrepancies in mandatory internal transaction disclosures are a frequent starting point.

Q. What penalties can a company face if found in violation?

A. A finding typically leads to a corrective order and a surcharge calculated based on the scale of the transaction or benefit involved (공정거래법 제49조, 제50조). In more serious cases, the matter can be referred to the prosecution for potential criminal liability against the company and responsible executives.

Q. Can a corrective order or surcharge decision be appealed?

A. Yes. A company can file an administrative revocation lawsuit against the FTC's decision before the Seoul High Court, and such litigation often focuses on challenging the comparison group or benchmark the FTC used to define 'normal transaction terms.'

Q. How is 'normal transaction terms' actually determined in practice?

A. The FTC and courts look for comparable transactions between unrelated parties in similar circumstances - similar volume, timing, credit risk, and industry conditions. Because a clean external benchmark is often unavailable, this comparison is frequently the most contested part of these cases.

Q. Does a legitimate business reason protect a company even if terms were favorable?

A. It can be a meaningful defense. If a company can show a genuine business necessity - such as securing supply continuity or responding to urgent operational needs - for terms that otherwise appear favorable, this weighs against a finding of unfair support, though it is evaluated case by case.

Q. Are individual executives personally at risk in these cases?

A. Yes, particularly where the FTC refers a matter for criminal prosecution. Executives who approved or directed the transaction can face separate liability from the company, which is why individual and corporate defense strategies are often coordinated but distinct.

Q. How far back can the FTC look when investigating internal transactions?

A. The FTC's authority to impose sanctions for a specific violation is subject to a statutory period, so transactions from many years ago may fall outside the enforceable window - this is worth checking early, as it can materially narrow the scope of exposure.

Q. When should a company involve outside counsel in this kind of matter?

A. Ideally before responding to any formal FTC document request, since early framing of the comparable market data and business justification often determines how the rest of the investigation unfolds. Companies that wait until after a statement of examination results is issued have fewer strategic options remaining.

Official References

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