CJ Group faces potential sanctions from South Korea’s antitrust authority over allegations of unfair internal support via inter-affiliate financial transactions that date back almost a decade.

According to industry and financial sources on Wednesday, the Korea Fair Trade Commission (KFTC) sent CJ Group a review report notifying it of pending sanctions over transactions involving group affiliates in August 2015. At the time, CJ Group entered a total return swap (TRS) agreement with Hana Daetoo Securities (now Hana Securities Co.) to effectively guarantee the purchase of convertible bonds worth over 100 billion won ($71 million) issued by struggling affiliates CJ Foodville Co. and CJ Construction. CJ CGV Co. also used a similar structure to support its affiliate Simuline Inc.

The KFTC views the transactions as illegal under laws prohibiting the unfair support of financially distressed affiliates. However, the case has drawn criticism within the industry on several fronts.

The first issue is whether TRS transactions themselves should be considered problematic. A TRS is a derivative instrument in which a securities firm purchases an asset on behalf of a client and charges fees, while the client assumes any gains or losses. TRS deals were common in the early to mid-2010s.

CJ did not face any sanctions for the transactions in question following a joint review by the KFTC and Financial Supervisory Service of TRS transactions conducted by major conglomerates in 2018. Only Hyosung Group was penalized for providing funds to its chairman’s private company, Galaxia Electronics Co., without a legitimate expectation of returns.

“TRS is a product managed within the risk control systems of financial institutions. Treating it as problematic could destabilize capital markets,” an industry official said.

The KFTC maintains that it is not targeting the TRS itself but whether the transactions resulted in prohibited affiliate support. Debt guarantees between affiliates are broadly banned under fair trade law, and the regulator views CJ’s transactions as an attempt to circumvent this rule.

Another point of contention is retroactive enforcement. The KFTC’s notice defining TRS-based debt guarantee circumvention was only released last month, with enforcement set to begin in April 2026 following a one-year grace period. The rulemaking was prompted by a 2023 complaint from the civic group People’s Solidarity for Participatory Democracy (PSPD), which accused CJ of using TRS to unfairly support affiliates. CJ’s contested transactions occurred in 2015, and industry representatives argue that the KFTC is unfairly applying the rule retroactively after nearly a decade of market acceptance.

A third issue concerns fairness, as many large corporations, including Eland World Co., Dongbu Steel Co., and KT Corp. acquired affiliate-issued convertible bonds and other debt instruments via TRS deals worth between 30 billion won and 400 billion won between 2011 and 2016. None of these cases resulted in penalties following regulatory reviews.

The industry contends that singling out CJ undermines regulatory consistency and predictability, while the KFTC maintains that it only reopened the case following the PSPD complaint and subsequently found grounds for action.

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