South Korea‘s fourth-largest conglomerate LG Group on Tuesday announced its withdrawal from the Federation of Korean Industries, marking the first major firm to officially withdraw from the controversial business lobby group.

LG Group notified the FKI that it will no longer participate as a member from 2017, and that it will not pay the 5 billion won ($4.14 million) membership fee, the company said in a press release.

LG Group Chairman Koo Bon-moo had expressed willingness to withdraw membership earlier this month, during the special parliamentary hearing into South Korea’s leading conglomerates over allegations that they donated large sums of money to the two non-profit foundations set up by President Park Geun-hye’s longtime friend Choi Soon-sil, who is at the center of the political scandal, in exchange for favorable treatment.

“My opinion on the organization is that it should be run like the US conservative think tank Heritage Foundation, and as a social group for companies,” Chairman Koo had said during the probe on Dec. 6.

The public’s call for the disbandment of the FKI has been growing, following revelations that the organization spearheaded the collection of over 70 billion won from members as donations for the Mir and K-Sports foundations.

During the hearing, Samsung Group Vice Chairman Lee Jae-yong and SK Group Chairman Chey Tae-won had also said that they will withdraw from the organization.

While Samsung Group has cemented its stance that it will not pay the membership fee for next year, SK Group is still reviewing details on when and how to withdraw.

The FKI is composed of some 600 member firms that pay a total of about 40 billion won in yearly membership fees, out of which the four major conglomerates – Samsung, LG, SK and Hyundai Motors — are responsible for pitching in a combined 20 billion won.

According to industry insiders, other firms are likely to follow LG’s exit, which may lead the 55-year-old organization to disband.

State-run financial institutions, including the Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea, are already undergoing official departure process from the organization.

The FKI plans to put together a reform plan before the membership’s meeting scheduled for next February, with hopes of persuading as many members to refrain from withdrawing.

The organization was founded in 1961 by Samsung Group founder Lee Byung-chull and others, as a business lobby group for major market players. 

By Kim Bo-gyung (lisakim425@heraldcorp.com)