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Business associations, as advocates for the private sector, play important roles in promoting good governance and sound policy-making, maintaining the private sector as the engine of economic growth, and helping create an open society and transparent government. However, recently, the Federation of Korean Industries (FKI), one of Korea’s five largest business associations, found itself at the center of a political scandal between the Korean government and the chaebol, Korea’s family controlled conglomerates.

The so-called ‘Choi Soon-sil Gate’ originated in 2016 when the FKI was caught engaging in suspicious fundraising activities to establish the Mir Foundation, which promotes Korean culture, and the K-Sports Foundation, which fosters elite athletes. In the course of raising funds, the FKI served as a lobbying group and conduit to transfer chaebol funding into these organizations. Lee Seung-cheol, vice chairman of the FKI who led the fundraising efforts, initially maintained during a parliamentary hearing that FKI’s member corporations voluntarily participated in the fundraising campaigns. However, in recent investigations, Lee confessed that President Park Geun-Hye’s associate Choi Soon-sil and former Senior Presidential Secretary for Policy Coordination An Chong-bum forced the FKI to collect 77.4 billion KRW (approximately 66.2 million USD) from 53 member companies of the FKI. Controversy still exists over whether the conglomerates involved in the scandal are victims of government extortion, forced to give donations or collaborators of bribery in exchange for certain favors. Nonetheless, the scandal has brought into question the FKI’s improper relations with the government.

In fact, this is not the first time the FKI has been implicated in a political scandal. Since the establishment of the FKI in 1961, under the administration of former President Park Chung-hee, father of the current President, the FKI has been involved in a number of scandals, particularly during the military dictatorship from the 1960s to the 1980s.

After the Asian financial crisis in the late 1990s, the FKI implemented corporate restructuring by mediating negotiations among major conglomerates; however, the FKI’s prestige had been severely damaged. Companies’ stopped raising funds for political parties altogether after the Political Fund Law was revised in 2004. Despite the newly unfavorable atmosphere towards corruption, brought about by the enactment of the Act on the Prohibition of Improper Solicitations and the Receipt or Offer of Money or Thing of Value (so-called “the Kim Young-ran Act”), “Choi Soon-sil Gate” still occurred.

As a result, voices are now rapidly growing for dissolving or at least radically reforming the FKI. Critics of the FKI suggest two solutions: the FKI should either be absorbed into the Korea Chamber of Commerce and Industry (KCCI) or should be converted into an economic think tank, like the Heritage Foundation.

The KCCI has been a de facto leader among Korean business associations. The KCCI has around 150,000 member companies of all sizes and it continues to expand its membership. On the other hand, the FKI’s 600 member companies are mostly conglomerates and refuse to recruit new members. Aside from the KCCI, other business associations, like the Korea Employers Federation (KEF), can replace the role of the FKI.

The second option, transforming the FKI into an economic think tank, would mean reducing external affairs operations, which are relatively vulnerable to corruption, and strengthening policy research operations. Proponents of this option argue that the FKI should be born again by strengthening research in global markets and future trends. By doing so, the FKI can become an influential economic think tank that can support the market economy as a whole.

No matter which option it chooses, the FKI highlights the risks of corruption occurring in business associations and ultimately should put in place stronger compliance and ethics controls to prevent further misconduct. Corrupt business associations do more harm than good to a democratic society and maintaining the status quo is not an option for the FKI.

Suyoung Kim is an ASAN Academy fellow at CIPE