KFTC Fines 10 Pharmas, Refers Criminal Charges
by Brendon Carr
Before the weekend, the Korea Times reported another heavy sanction imposed by Korea’s newly-energetic Fair Trade Commission:
The country’s corporate watchdog said Thursday that it has imposed a combined 19.9 billion won ($22 million) in fines on 10 local pharmaceutical companies for unfair trading practices, including the provision of illegal rebates to hospitals and wholesalers.
The Fair Trade Commission (FTC) said that it also plans to refer five out of the 10 companies that profiteered the most from the unfair trading, soon to prosecutors.[...]
“Rebates and other kickbacks given by the 10 firms amounted to 522.8 billion won,” an FTC spokesman said. “It is not a matter that can be sufficiently dealt with by administrative measures such as fines. We have decided an investigation by the prosecution is necessary."[...]
[The FTC] estimated that the illegal practices have caused damage worth about 2.18 trillion won to consumers.
On Monday, FTC Chairman Kwon Oh-seung indicated that his commission could scrutinize major hospitals nationwide in relation to the illegal business practices by the pharmaceutical industry.[...]
“It could be a problem of institution or policies, or just a scandal. I don’t think that it is a matter to be dealt with simply by fines,” he said. “So we are thinking of ways to make the industry more competitive institutionally.”
“Rebate” is the Korean euphemism for a kickback. Money spent by the hospital—invoiced and entered on its accounting books—for its drug purchases is often “rebated” to the purchasing manager surreptitiously (a personal bribe), or paid into a slush-fund account of the hospital (an institutional bribe) to be spent on “official purposes”—morale-building activities such as excursions to expensive hostess bars, or on corrupt payments to public officials. Often the money is divided between the personal bribe to the purchasing manager and the institutional bribe; the individual bribe helps buy the silence of the purchasing manager.
The medical sector, perhaps because it is subject to strict state controls on costs and takes much of its funding not from patients but from the National Health Insurance Plan, might be the dirtiest in Korea. (If fraud in the medical industry is surpassed by any sector that would have to be construction.)
Of the major fraud/embezzlement cases and corporate corruption cases that I’ve worked on over my career, a sizeable plurality have come from or been linked to companies doing business with Korean hospitals. The corruption and fraud in the medical sector are corrosive influences on any multinational’s code of conduct. Any attention that the KFTC can lend to clean up this sector will be effort well spent.
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hi, Brendon
I am studying American law in Southern Methodist University Law school. Korean Antitrust law also surfaces in the global market due to it’s economic volume. It’s so good to see Korean antitrust news here.
The focus I am putting in the current law school is also US anti-trust law. The comparison would be quite interesting. See you.
Jinhoo, thanks for commenting. As you know, the KFTC has been a lapdog for almost all of the agency’s history, but in the last year KFTC has caught and sanctioned as many unfair traders—and applied as many sanctions—as all of the previous 20+ years. Clearly, this is an area for all businesses in Korea to watch, and that’s why we’re watching developments closely. Without case reports it’s difficult for businesses to understand what is and is not unlawful conduct. Or at least to discern the edges of acceptable corporate behavior.
Do you know SMU 2L Brad Luo? He’s got an excellent blog—the China Business Law Blog. Maybe you two could join forces and put guys like me under.
Readers of this blog post might find the following article the Korean FTC to be of interest: A New Kid on the Block: Korean Competition, Law, Policy and Economics
(If fraud in the medical industry is surpassed by any sector that would have to be construction.)
Six construction companies have been indicted on charges of collusion in a subway construction project