The corrupt business practices of Lotte Homeshopping Co. that have been brought to light through a recent prosecutorial investigation are simply shocking. Lotte officials, from the president down to merchandisers, have squeezed money out of suppliers, abusing their superior bargaining position.
Prosecutors indicted 10 Lotte officials on charges of taking kickbacks and embezzling company money. They also charged 14 vendors and suppliers with paying bribes to the Lotte officials and helping them raise illegal slush funds.
Among the prosecuted Lotte officials was Shin Heon, who led the cable TV shopping channel from 2008-2012 and thereafter served as the head of Lotte Shopping Co., the nation’s largest retailer. He was accused of taking 130 million won in kickbacks from suppliers and appropriating corporate funds totaling 302 million won.
Most of the indicted officials took money from suppliers in return for prime time spots. Some were found to have received kickbacks from interior contractors and offered part of the ill-gotten money to Shin.
They took kickbacks in diverse forms. For instance, a merchandiser who suffered a loss after buying stocks on the advice of a supplier sold the stocks to him at a profit.
One executive had a supplier provide monthly living expenses of 3 million won to his divorced wife, while another received bribes through the bank account of his common-law wife’s sister to conceal his identity.
An official even forced a supplier to pay off his father’s 150 million won gambling debt.
These officials abused their power to allocate airtime. As sales of products differ greatly depending on when they are presented and who the show host is, vendors and suppliers are willing to do whatever they can to secure prime time spots and popular show hosts.
Since its launch in 1995, the cable TV-based retail business has grown rapidly, with the aggregate sales of the six home shopping channels now exceeding 9 trillion won a year. These retailers provide a low-cost marketing platform for small and medium-sized companies. They also allow consumers to purchase goods of high quality at affordable prices in the comfort of their own homes.
Yet the industry has been plagued by a die-hard kickback culture, which fattens the pockets of officials of home-shopping companies at the expense of suppliers and consumers.
The recent scandal at Lotte Homeshopping is not the first of its kind. In December 2012, prosecutors uncovered rampant corruption in the industry through an investigation into four of the six home shopping channels. The ugly practices at Lotte suggest that corruption has not been eradicated.
The six home-shopping companies enjoy great privileges. Their sector is protected by the government as it has refrained from issuing additional licenses. If they want to retain their privileges, they should behave themselves. The government needs to consider opening up the sector or revoke the licenses of the companies that fail to live up to its standards.