By Don Southerton, Editor KoreaLegal.org
Tobacco lawsuits have a long history in the U.S. and West. Smoking although more than popular in Korea has drawn attention in the wake of the country’s Well-being trend. This recent court decision echos early efforts to bring lawsuit against Big Tobacco in the American South. The Seoul High Court ruled that there was considerable correlation between smoking and lung cancer.
Big Tobacco on the Dock
| A meaningful ruling came out yesterday in a lawsuit filed by a group of smokers against Korea Tomorrow & Global (formerly Korea Tobacco & Ginseng), which manufactures and sells tobacco products. The Seoul High Court ruled that there was considerable correlation between smoking and lung cancer. It added that the plaintiffs had been smoking for a long period of time and suffered lung cancer, acknowledging the epidemiological relevance.
The ruling is the first-ever confirmation of the common knowledge that smoking increases the risk of lung cancer. The appeals court overruled a lower court’s ruling that there was no evidence that proved the plaintiffs suffered from lung cancer as a result of smoking. If the Supreme Court upholds the ruling, it may cause huge repercussions as the decision provides legal grounds for many smokers with lung cancer to file separate lawsuits against tobacco companies. The appeals court, however, upheld the lower court’s ruling that KT&G was not liable for compensation because the plaintiffs failed to prove that KT&G was involved in illegal practices in the course of manufacturing and selling tobacco. In other words, the court didn’t agree with the plaintiffs’ argument that the government and KT&G attempted to deceive customers by covering up the dangers of tobacco and mislead them with sales gimmicks, such as calling several tobacco brands “light” or “mild” to make them appear less harmful to the health. The harmful effects and nicotine addiction have been proven through medical research. As a result, an avalanche of lawsuits were filed not only by individuals or groups but also by health insurance companies and governments in the United States. In 1998, a state government in the U.S. won a lawsuit against tobacco companies and landed a whopping amount of compensation – $246 billion – through a so-called Mass Settlement Agreement. The family of a smoker who died from lung cancer also won a lawsuit against Phillip Morris and received $80 million as punitive compensation. The victory of KT&G, however, does not grant it immunity from being responsible for causing health problems. It is regrettable that KT&G refused to accept the court’s arbitration plan demanding the company establish a public foundation to alert smokers to health risks. The central and local governments should also do their bit by increasing the bans on smoking in public places. |
Source: JoongAng Daily
Lone Star’s Korea Struggles
Saturday, November 27th, 2010By Don Southerton, KoreaLegal.org Editor
In the wake of the devastating 1997 IMF Crisis, international investment organizations looked to South Korea for opportunity. Some have fared extremely well—paying pennies on the dollar for Korean firms crippled by the IMF Crisis.
Dallas-based Lone Star has long been the subject of controversy and targeted for its huge gains. On one hand when Lone Star and others invested in South Korea firms risk was high. Like most investment firms, the model is to provide support and help re-build the firm, then sell their holdings when the business is strong. What has irked many Koreans is that Lone Star has reaped huge profits—some feel on the backs of hard working Koreans.
Lone Stars woes are not over, as noted in this Korea Times article…. As I often share in Korea Legal.org, I have some thoughts on what Lone Star should do to mend its tattered relationship in Korea. Of course, that what my firm BCW and I do ! So if someone at Lone Star is listening…. give me a call
Tax may knock Lone Star’s exit plan from Korea
By Kim Jae-kyoung
Lone Star Funds Chairman John Grayken may be popping champagne over the sale of its stake of Korea Exchange Bank (KEB) to Hana Financial Group as it has paved the way for the fund to exit the Korean market. The sale is also expected to relieve mounting pressure from investors on Grayken to step down.
Hana Financial said Tuesday that it will hold a board meeting to finalize the takeover of the nation’s fifth-largest lender Wednesday morning and Chairman Kim Seung-yu will call a press conference in the afternoon ahead of public disclosure.
Even if the two parties sign an official sales agreement, Lone Star is facing a bumpy road ahead as there are a number of issues that could stand in the way of the Dallas-based fund’s exit plan.
The biggest hurdle is taxation. There is a wide perspective gap between Lone Star and the National Tax Service (NTS) on the taxation of capital gains from the sale of KEB. Unless either of the two steps back, chances are that the fund will face another legal battle.
The nation’s tax agency has claimed that Lone Star should pay taxes on capital gains from the sale of its controlling stake in KEB, while the fund sees no reason why it has to pay taxes.
“It is too early to talk about taxation as Lone Star has yet to realize the capital gains and to report the transaction,” a ranking NTS official said on condition of anonymity.
“Once the fund reports the deal, we will levy taxes on the capital gains. If the fund does not report the case and leaves, we will seek ways to impose taxes,” he added.
In June 2007, the NTS levied taxes on the fund’s capital gains of 1.2 trillion won from selling its 13.6 percent stake, or 87.7 million stocks. At the time, the NTS imposed 119 billion won in corporate tax on Lone Star Advisors Korea, saying the local subsidiary of the U.S. fund is a permanent establishment.
Lone Star then filed complaints with the tax tribunal against the taxation. It argued that since LSF-KEB Holdings is based in Belgium, it is not subject to taxation under the Korea-Belgium tax treaty, demanding returns of the full amount being withheld for taxes.
But the tribunal rejected the claim, saying that LSF-KEB Holdings is a “paper company” established by Lone Star primarily for tax evasion. The KEB stake is held by LSF-KEB Holdings, a Belgian subsidiary of Lone Star. The fund took the case to court, and the case is still under review.
“We don’t think that we have to pay taxes on gains from the sale of KEB because we made the investment through a tax haven under the Korea-Belgium tax treaty,” said a source close to the U.S. fund, asking not to be named, hinting that the firm will not report the transaction to the tax authorities
“You have to remember that many Korean companies are also taking advantage of such tax benefits by making investments overseas through tax havens,” he added.
Was Lone Star a legitimate buyer?
Separate from the taxation issue, the financial regulator’s review of Lone Star’s legitimacy as a major stakeholder could emerge as a major obstacle. The FSC has yet to make a final decision on whether the company was “fit and proper” as the major shareholder of KEB.
Under the current banking law, those who invest over 25 percent of their capital in non-financial firms or those whose assets in such firms exceed 2 trillion won are not allowed to own up to 10 percent of a bank as they are classified as a non-financially focused company.
Civic groups have claimed that given Lone Star’s investment portfolio across the globe, the fund should be seen as a non-financially focused company.
If the FSC rules that Lone Star is a non-financially focused firm, the fund will be restricted to exercising its voting right to less than 9 percent of its 51.02 percent stake. The regulator can also force the fund to unload its holdings. The FSC refused to comment on the review process.
In addition, with the sale of KEB finalized, attention is also being paid to whether Grayken will keep his pledge to donate 100 billion won to Korean society.
At a press conference in April 2006, he said that the fund is willing to donate 100 billion won for the development of Korean society once it realizes capital gains from the sale of KEB.
Lone Star is expected to enjoy capital gains worth up to 4.7 to 4.8 trillion won from the sale of KEB as it has already recouped 2.12 trillion.
Source: Korea Times
Tags: Don Southerton Korea consultant, Hana Financial Group, IMF Crisis Korea, John Grayken, KEB Lone Star, Korea exchange Bank, Korea expert witness, Korean FDI, Lone Star, Lone Star Korea, Lone Star Korea John Grayken
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