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Sep 10, 2012

European Union Chamber of Commerce Not Longer Doing Business in Korea by Tom Coyner

This has not been a good year for foreign chambers of commerce in Korea – particularly for their executive employees. This spring the Korea German Chamber of Commerce & Industry conducted a forensic self audit and found its senior executive employee had been regularly using moneys for his personal use without prior approval of the president and board. That led to that employee’s immediate dismissal.

The Korea European Union Chamber of Commerce, often regarded as being more of a private consulting company in that it did absolutely nothing without charging a fee, not to mention the irregularities in not paying value added tax on its magazine advertising, found itself in such tax difficulties for itself and for its top executives’ personal taxes that it had no choice but to shut down. Abusing metaphors, there may be other shoes to drop, given the overall environment. The long unspoken suspicion among long-term business professionals in Korea has been that the larger and wealthier chambers have been corrupt as they have developed increased budgets with insufficient oversight and disregard of their own constitutions when it come to financial transparency.

Huge amounts of membership fees have been collected, executive employees’ total compensations have met and often surpassed those of their largest member representative directors’ levels, and what one may call “interesting” expenditures have been made annually to lobbyists – all without transparent accounting to their members. This situation has continued since the chambers roles, while important, have been in the overall context much less significant than what they claim to be for their members.

Consequently, for good reason, when individual expatriate members eventually start putting “one and one together,” the rational conclusions have been not to blow the whistle, since risking the political blow backs have not been worth it, and in a few months, the newly aware executives would be transferred out of Korea. So none have been motivated to shake their hornet nests. What changed this year has been a major personality clash between an elected president and his executive employee and the Korean tax authorities deciding to look into the finances of a chamber.

I have no idea if there have been any whistle blowers involved, and if there were, I have no idea what may have been their motivations. But the first two shoes have fallen – and dramatically. So, how may this phenomenon be prevented? I have two or three simple suggestions:

 First, the chambers of commerce need get out their constitutions, take long hard looks and enact their articles in terms of the letter and intent, with a special concern on financial transparency to the memberships. The glossing over annual public statements of accounts has been providing too much cover for both real and imagined shenanigans.

Second, develop and maintain proper relationships between the elected presidents and the hired executive managers that is cooperative and yet not too buddy-buddy, along the wink, wink, nudge, nudge variety. These cordial relationships must also serve as check-and-balance functions and not allowed to be perceived as possible partners-in-crime fellowships. Third, the boards of directors should consider conducting discreet forensic audits.

Yes, there are annual audits being conducted, but one wonders about the auditors’ distance from those he or she is auditing and whether the past audits’ criteria have been sufficient. In the case of the German and European chambers, proper, preemptive audits would have prevented much of what has happened this year. The other chambers could well be sitting on their own time bombs.

by Tom Coyner.  Senior Commercial Adviser to IPG.  
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SeanHayes@ipglegal.com

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S. www.ipglegal.com